Technical Indicators for High Probability Trading by Adam Khoo

hello and welcome to this video tutorial on technical indicators so in this video I'm going to show you what are some favourite indicators I use to increase the probability of my trades so understand that most of these technical indicators are really for short-term trading and if you're more of a medium to long term investor this doesn't really apply to you so before that please read the disclaimer and once you're ready let's begin the video so if you look at a charting software I can think of swim you notice that there are really hundreds of indicators in fact it's about 300 indicators and we can use this indicators to anticipate the probability of certain price movements so again remember that we are not using it to predict future prices it is to find what's more probable and that's because no one can predict the market and understand that all these indicators are based on historical data so they are all lagging in nature they don't lead the market they lack the market so let me show you some my favorite indicators on use and some of them are more for trend following some of them are more for counter trend trading which is a bit more advanced unless you're really experienced or NWA professional you may not want to attend that unless it's paper money so for trend following are these are my favorite indicators we've got moving averages that tell us the direction of the trend okay we have got the force index that tells us how strong the force is are which is based on volume and MACD as well that tells us whether the momentum is bullish or bearish momentum and the parabolic size also a momentum indicator so the indicators you see on the Left basically I use in trend following they tell us when momentum is in our favour the indicators on the right are known as oscillators once an oscillator you know think of like a pendulum when you pull the pendulum all the way to the right what happens if this was swing back to the center and back to the laughs again when it goes to my student lab it swings back to the right it's like an oscillator right going between to extremes so you notice that price action move in the form of waves okay it goes up by the impulse they retrace us and impulse again retrace us again let me come I draw over there right so it's got empowers retrace impulse retrace impulse retrace that's an uptrend on a downtrend the same thing we've got impulse retrace impulse retrace impulse retrace so think of the impulse kind of like a breathing out so you breathe out you can't breathe out forever you have to breathe in before breathing out again okay it's in a consolidation it goes something like that so no matter what this that's kind of like a wave pattern right when it gets too high it tends to have to retrace back the pendulum has a swing back to the mean okay if it gets same thing I do low has to retrace back to the mean so how do we measure whether the prices have like overbought and ready to come back down or Oversoul ready to come back up we use oscillators that may measure overbought and oversold conditions so some some of my favorite oscillators with the stochastic oscillator the full stochastics a Bollinger Bands mcdee can also be used as an oscillator n is a trend flowing to and of course the Williams percentage are so let's take a closer look right now alright so the first indicator is the parabolic stock and visa reverse or the parabolic SAR and this is basically a very powerful a trend-following indicator that tells us whether it's bullish momentum or bearish momentum and simply when the dot the black dot which is the parabolic SAR is below candles it is bullish momentum and when the dots are above the candles its bearish momentum as you can see over here so this indicator works really well when the price is trending either up or down trend but it may lead to many false signals when the price goes sideways when it goes sideways you get a bag and a selling advisor then I'm losing money right so you can't use these indicators by themselves in isolation they are very sensitive and create a lot of false signals they should only be used in conjunction with the price trend which we determine from the moving averages and the price pattern higher highs or higher lows so let's move on the next indicator will be the force index and the first index is calculated from three things number one the direction of the price changing so it's moving up the force is positive it is moving down the force is negative number two the extent of the price change the bigger the price change the bigger the force okay and the third thing is volume the higher the volume the higher the force the lower the volume the lower the force so force index is calculated by taking the closing price of today and deducting yesterday's closing price and multiplied by the volume okay so it comma tells us how much force is behind the price so if you look at the stock over here you can see that there's a zero line and any time the black line which is the force index I take a 13-day force index which is the average of the last 30 days of volume okay when the black line of force index is above zero it's bullish momentum if it's below zero it is bearish momentum so obviously if I'm going long I want to have more bullish momentum than bearish moment if I'm going short more bearish momentum right so besides that you can also look for the divergence patterns so in other words when price is going up and price is making higher highs as you can see higher highs ideal you want to see the force index making higher highs that tells you that high prices are supported by a stronger volume okay now in this case you can see prices making higher highs and the force in X making higher highs but the second phase as the price makes higher highs the force index makes lower highs so that tells you that as prices go up that's less and less volume supporting the price and that makes it more risky to enter a long position over here of course your if you already long that it doesn't mean that when force index goes down it does not mean that you have to sell because force index is really sensitive it could go down and move up again okay but the movement force index crosses below the zero line it tells you the force has become negative so you may want to exit an investment or trade if you're already very profitable while you at least have two or three or four are of course if you don't even have that then you can just stay in the trade so this is the force index and a parabolic SAR together if you look at the entire chart you can see that this is a clear medium them uptrend where the 50 is about the 150 so if you're meeting them investing adjusting your just hold it all the way no worries right but if you are if you want to fine-tune your entry to get in just when momentum is bullish you can get in when the force index is spiking up over here above zero and parabolic SAR is bullish right over here it's bullish its bullish so that could take a be a time to take a long entry over there okay and again if your longtime investor medium-term you just hold it true but if you are not then you obviously would not want to enter over here because at that time although the uptrend is up momentum is still bearish you know catch it when momentum turns when parabolic SAR goes bullish and force index crosses back above zero okay so one of the most popular indicators would be the MACD or the movie average Convergence divergence and you've seen it in the wealth academy it's a below over here and you can choose MACD by itself which will give you the black line and the red line or you can choose MACD with histogram where you also get the black bars and the red bars it's really up to you it depends on what you like because they both tell you the same thing well MACD is a trend following indicator but it's also an oscillator right and it basically is calculated by showing the relationship between two moving averages which is a 12 EMA and the 26 EMA so for the MACD we place our settings 12:26 and nine and what basically this means is that it's comparing the 12 EMA to the 26th EMA normally we look at a 20 40 MA so that 12 26 is even shorter than a 20 40 so it's more again more reactive okay and then the MACD is calculated by subtracting the 26 EMA from the 12 EMA line and that's how we get this black line which is the difference between those two moving averages now we take that black line and we plot a nine day exponential moving average of that MACD and that new line is called the signal line which is the red dotted line so essentially that is how these two lines are derived okay now how do we use it well first we look at the MACD line and the signal line cross over so when the black line cross crosses above the red signal line we have called bullish momentum when the black line crosses below the red signal line we've got bearish momentum it's as simple as that so once again before we go along we want momentum to be bullish that is ideal and before we go a short bearish yeah and notice when the black line crosses above the signal line we've got the black histogram coming up when the black line crosses below the red signal line bearish histogram pulling down as well so you can look at either the black and red line or the histogram they both tell you the same thing now another way to use my D is this well I just explained this one which is the MACD line and the signal line crossover so that's the first way to use it basically right the second way to use it uh is looking at the MACD line and whether it crosses above or below the zero line okay um where's the zero line the zero line is over here that's a zero line okay so whenever the black mcdee line is above the zero line it 12 tells you that the 12 EMA is above the 26 EMA which is a very short term uptrend when the black line crosses below the zero line the 12 EMA is below the 26 DNA which is a really short amount right now personally I do not use it in that way but just explain to you well that's how some people like to use it because I prefer to use the 20 40 I find it 12:26 it's a bit too fast a Chris a lot for signals in reading trends but it's good for momentum right so in fact you can see the relationship this is the 12 EMA red line the black EMA 26 line right and you can see over here when the 12 EMA crosses below 226 the black line goes below zero right and when the 12 EMA crosses above the 26th EMA that black line crosses above zero so this indicates changing trend again I don't use this personally because I prefer the 20 40 and the 5150 this is a bit too fast of a trend change a lot of for signals right now the third way is also a way which I use it which is to spot divergence patterns and again there's a whole video on divergence so please what that video on divergence patterns and we look for divergence between the price trend and the MACD trend so when you see that the price of the asset is making higher highs right we connect this swing high to this swing high is making higher highs ok but if the corresponding swing high on the MACD is going down that means price is making higher highs but make these making lower highs and that is and indicate indication of bearish divergence which means the anticipation that price will reverse number of course you have to wait for a confirmation candle or a bearish reversal candle if you want to do a counter trend short trade which again you should only do if you're an experienced trader if you're beginner you may not want to do it this is an example for bullish momentum okay so for bullish momentum is the opposite for bearish momentum we always connect swing highs for bullish momentum we always connect swing lows ok so if you notice the price is making lower lows I connect the swing lows and it's peaking lower lows but the corresponding MACD is making higher lows so I see a divergence which tells me there's a high probability prices will reverse up temporarily ok again I have to wait for a bullish confirmation candle or a bullish reversal signal and if you go long it's a counter trend trades a bit more risky do it if you're more experienced ok great cool let's move on ok now let's take a look at oscillators right one of them is called a full stochastic oscillator and it's useful for identifying overbought and oversold levels within a trend so again if you take a look at this is an uptrend right and on an uptrend again what happens is the price goes through an impulse wave retracement impulse retracement impulse retracement and the story continuous right breathe out breathe in right now here's the thing sometimes when he breathes out or it goes up it goes up a bit too fast too high too fast it is overbought overbought and we expect it to retrace back down to the mean like a pendulum okay and similarly if it goes too low too fast it is oversold on the uptrend and will tend to bounce back to the mean so this oscillator finds oversold and overbought levels and let's see how it works okay now I'm not going to go to the exact details of how it's calculated it's very technical if you want you can go to read about it I'm just gonna tell you how it works okay so basically the stochastic oscillator you have got the percentage Kaline and the percentage D line right and that's the brown one percentage K thus nhd is the blue one okay so we have got this line here and the line here it's like a range okay and this is 80 and this is 20 so anytime you have got the percentage K and D above 80 its overbought price is a bit too high for now will tend to retrace back down what goes up must come down and when it's below 20 it is over sold right tends to bounce back up again now it's important again that you can't use this oscillators in isolation you have to use them in the right context let me tell you how a much worse please use them like some people they say Wow okay so it is overbought right i short sale okay now you can't do that why because when the price is very strong when it's very bullish it can remain overbought for a very long time so overbook and steel overbought for a very long time so you shortly you can still go and lose you a lot of money okay similarly if if it's below 20 says over solo I'm gonna buy it right but if it's on a downtrend the price keeps falling like crazy over so can remain over so for very long time right so you know you buy and it keeps going down when you lose a lot of money so you can't use this by itself you have to use it together with right support resistance and trends and moving averages and use them at the right time so again let me give an example so this is on an uptrend and how do I know it's on an uptrend because the 50's above the 150 moving average right the tween is about 240 for example so I said on an uptrend uptrend we go long that's what you buy on an uptrend that's right okay and when you want to buy you want to buy when it bounces off a certain support level alright so in this case notice that it goes impulse retraces and this is a support level the support is the 50 moving average and at that support is the stochastics is below 20 then we can take a long entry because it's Oversoul right you'll tend to bounce back up but it's in a right Connie context is on an uptrend so that's fine is at a support level so all stars must be aligned okay here's an example right so over here um prices on a downtrend so downtrend it's it's again a wave pattern like that right so we've got empower three treys impulse retrace and it retraces to the 50 moving average which is a resistance right so here's the 50 and it comes down all right could we could we do a shot over there and I sure shot the downtrend shot at the rally hits a resistance and stochastics overbought which means again that overbought you tend to come down we can shot it over there so again you must know when to use the indicators in the right contact you can use them by itself so that's the stochastic oscillator okay another indicator that I use and but I have to say that this is more for very short-term training and more for count the trend training so if you're not very experienced at trader your newbie you may not want to use this but it's good to know is general knowledge right so what a Bollinger Bands Bollinger Bands are another way to indicate overbought and oversold conditions okay and usually I will use the 20 simple moving average on the price 2 standard deviations so what the software does is that your plot at 20 simple moving average on the price and you'll take 2 standard deviations on the top and 2 standard deviations at the bottom and then plot these upper and lower boundaries called the Bollinger Bands okay so these Bollinger Bands act like support and resistance notice when the price goes to the Bollinger Bands it faces resistance and comes down faces resistance it comes down resistance comes down resistance comes down support support so far okay and they also indicate overbought oversold so normally when the price is above the upper Bollinger Band line in this case it is over bought so it tends to come back down ok when the price is a piercing below the lower Bollinger Band it is over so it has to go up again so once again you can't use this on its own in isolation you have to use this in conjunction with the right candlestick patterns and the right trends based on moving averages ok so those are the Bollinger Bands and so sometimes also if you want to take a long train long train or go long and you notice that the entry price is right near the upper Bollinger Band may be an idea not to go in and if you want to do a short if you stray near the lower Bollinger Bands you may not avoid it this way okay here's an example of how I use Bollinger Bands in counter-trend training and is more for really short term professional level trading but just to share view over here you see that the price has gone above the upper Bollinger Band right telling us that it is over bought right and we have got one called bearish pin candle bearish pin candle right so there's a probability that is going to reverse back down but that so we can definitely do a shot into a sell shot there you can put a stop loss over there now we have to ensure that it can reach at least two are okay before hitting a support and going higher because remember that if you shot this you're shorting on an uptrend which is the injurers because we've shown an uptrend yeah I can go down temporarily but you don't get out in time it's going to keep the support and continue the uptrend alright but those are some of the things that I do at the WEA professional level and experienced trainer level here's another example you can see over here the the candles outside the lower Bollinger Band and it's a bullish pin so there's a property even retrace okay so that could also be a reason to take a very short-term counter-trend up okay another over boiling over so indicate the oscillator is the Williams percentage are and I usually use this for capitulation and capitulation again it's another video you can watch on when to go long when price is really really deeply over so when the aunt last auntie has committed suicide I'm going to get in before it rebounds okay so the Williams percentage are I usually use the 10 setting and the 260 setting and I wait for the black line to go below this red line which is the minus 80 line and this black line to go below the minus eighty line which is again over so on a short-term and long-term basis okay and at that point it's oversold over here right if I have got a bullish pin or I've got a bullish candlestick pattern like a morning star but on one right soldier I could do a short-term counter trend trade up but it's good to get out before it hits a resistance because on a downtrend it could continue the trend alright so these are just some of the ways how I use these different indicators so for finally let me just say that while you were I share view all these indicators it doesn't mean that the more indicators you put in the better you know it's kind of like cooking right at times you put in garlic they're time to put in ginger then put in soya sauce if you're going to dump everything in your condiment shelf into the soup you're gonna get a stammer isn't this horrible okay because a nice to indicate this will tell you the same thing and son is your contradict so you have to know when to use which condiment for which soup so please stick to the specific setups I taught you in wealth Academy so wealth Academy you learn there on an uptrend you go along look at what parabolic SAR force index MACD to our tree are bullish go long if you've got a bullish candlestick pattern one or three can go along if you want to go short wait for a concept down trend right parabolic SAR make defaults in next two or three bearish goes on you've got a bearish candlestick pattern one or three you can go a short okay and for other setups that you learn like capitulation or when you go for wealth like any professional you're going to learn that B ran a strategy you're going to learn all kinds of Bollinger mean reversion parabolic or the really colorful Forex strategies then each setup will use the indicators in the right proportion to get the best taste for the soup okay so I hope this has exposed you more to indicators and you got questions please send me an email happy trading and again this is for trading if your investor long-term don't worry about indicators they're not too important for you you

Channel: Adam Khoo

Views: 540,219

Rating: 4.9107513 out of 5

Keywords: adam khoo, adamkhoowealth1, wealthacademySG, stock trading, stock investing, technical analysis, ETFs, exchange traded funds, CFDs, wealth academy, AKLTG

Id: q-fc_TQSL2g

Length: 26min 37sec (1597 seconds)

Published: Sat Nov 26 2016