Fundamentals of Technical Analysis

Course overview Technical analysis and other quantitative methods are a vital and valuable supplement to the traditional macro-economic theory and modelling tools available to finance professionals. A particular focus in the course will be the increasing importance of inter-market technical and quantitative analytical tools. Rather than taking specific securities and considering their valuations and expected returns in isolation, the emphasis will be on the inter-connection of items from different asset classes. For instance, questions about the appropriate valuation of equity markets is as affected by developments in the FX and sovereign debt markets, as it is by internal economic indicators regarding GDP growth, employment data, etc. Summary of course content Learn key quantitative techniques that enable enhanced performance in trading and investment in all asset classes Investigate the price behaviour of individual securities Understand how technical/quantitative analysis supports a top down and macro approach to portfolio construction Review how technical analysis supports algorithmic trading logic Examine sentiment and crowd psychology as reflected in patterns of price development Take away robust methods for anticipating overall market inflection points Methodology As with all Euromoney Training courses, this programme makes use of case studies and exercises to ensure that you leave the course, ready to apply your new knowledge. Who should attend this training course Asset, Fund, Investment and Portfolio Managers Asset Allocators/Portfolio Strategists Investment Advisors/Private Bankers/Wealth Managers Analysts Structured Product Developers ETF Structurers Algorithmic Trading Developers Foreign Exchange Traders Pension Fund Managers/Trustees Compliance Officers Fund Administrators Risk Managers/Controllers Private Investors Senior Back Office Personnel or Staff Supporting publication:
Day 1 Value of technical analysis (TA) Key arguments for and against the application of TA tools to financial markets analysis Fundamental analysis vs. technical analysis How does TA fit with the efficient markets hypothesis? Synopsis of historical TA literature Dow Theory Elliot Wave Theory W.D. Gann Macro asset allocation strategies using TA Case study: - TA and the “Quant revolution” - application of TA methods in the development of algorithmic trading – Characteristics of systematic trading platforms Charting and pattern analysis Charting as the foundation of TA Candlestick charts - key patterns Point and figure Ichimoku charts Effective chart patterns and how to trade them profitably Chart analysis of FX, global stock indices End of day, intraday and tick charting Real time charting analytics Case study: Explanation of the benefits of the Ichimoku charting technique vs. the use of moving averages Moving averages, trends and reversals Moving averages as the foundation of trend analysis Trend channels, support/resistance, pivots Reversal patterns and trend exhaustion Trend violations, inflection points, false breakouts and nonconfirmations Gaps, congestion and breakaway patterns Case study: – Analysis of price gaps reveals a power law relationship – Illustrations from Long/Short Market Dynamics and updated examples Volume and momentum Momentum indicators and oscillators Money Flow Index (MFI) Moving Average Convergence and Divergences (MACD) How momentum interpretation is used in trading strategies Consequences of dark pools and HFT algorithms to volume analysis Day 2 Technical divergences and market dissonance Divergences between price and volume, price and momentum Explanation of momentum and money flow divergences Reversal patterns and major inflection points - how to identify/anticipate them Markets as a collective mind which can exhibit dissonant behaviour Explanations of the “psychology” of positive and negative divergences with tools from behavioural finance Anticipating how far corrections and breakouts will go Case study: Chart patterns revealing examples of technical divergences and dissonance with a special focus on global equity indices Volatility, liquidity and correlations Different methods of measuring volatility Interpreting the CBOE Volatility Index (VIX) Historical patterns of volatility and tail risk events Strategies for avoiding heightened volatility and tail risks Heightened sector and asset class correlations associated with increased volatility Volatility clustering, limits of normal distribution analysis to time series data Interpreting the CBOE Volatility Index (VIX) Elliott Wave Theory (EWT) Explanation of the basics of Elliot Wave Theory Impulse waves and corrective waves Long term wave structure and intraday wave patterns Wave “personalities” Fibonacci ratios and price targets Case studies: Fibonacci retracements Criticisms of Elliott Wave Theory Case study/exercise: – Practical application of EWT in regard to trading foreign exchange – Setting retracement targets and stop loss levels based on EWT Cross sectional market analysis Explanation of new focus on inter-market strategies and tendency of asset classes to be more highly correlated Systemic liquidity conditions and financial contagion Co-movements of different asset classes - sector rotation, correlation strategies Overview of some technically driven “quant” models. Large scale macro trading patterns involving switches between risk appetite and risk aversion Day 3 Market cycles and miscellaneous indicators Market cycles - amplitude, length, phase etc. De-trending time series data Software tools to detect underlying cycles Fractals and multiple time frame analysis Application of fractal analysis to different time frames Measuring strength of trends with the ADX Uses of the Directional Movement Index (CDMI) Uses of the Commodity Channel Index (CCI) Case study: Proprietary indicators of Tom DeMark Statistical techniques with time series data Review of several statistical concepts and techniques Calculating variances and standard deviations Calculating correlation coefficients Linear regression and curve fitting Deriving alpha and beta from linear regressions Kurtosis and skew The shortcomings of the normal distribution when applied to financial data Volatility clustering violates random walk hypothesis Measuring trend persistence with the Hurst coefficient Algorithms and market microstructure Algorithmic trading opens up new insights into trading patterns Role of electronic market makers in liquidity provisioning Adverse selection for market makers at times of stress The VPIN metric devised to monitor order imbalances Early warning indicators for bouts of illiquidity Order flow, imbalances and market maker instability Liquidity providers become liquidity consumers Case study/exercise: Critical market episodes arising from HFT activity including “The Flash Crash”. Forensic analysis of market movements in S&P500 futures associated with other movements in the foreign exchange market, especially the Japanese yen, highlighted the fragile nature of overall liquidity which lead to large drops in equities and ETF’s New directions in technical analysis Markets are far more institutionalized - minimal retail participation With prevalence of HFTs, volume analysis is becoming less useful Holistic approaches are more suited to a risk on/risk off paradigm The role of the FX market as a trigger for movements in other asset classes Use of correlation heat maps to reveal significant alignments between key FX pairs and ETFs Framework for quantifying “risk on/risk off”