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Indicators: EES V Speed
Sergey Golubev, 2014.06.07 07:43
3 Reasons Volatility Might Increase (adapted from Forbes article)
Where art thou volatility? Not here, nor there, but soon to revive, me
thinks. Volatility in risk markets is simply the measurement of
variation in prices which is often calculated over certain time periods
and against the idea of a normal distribution. The most important
markers are historical (statistical) volatility and implied volatility.
Historical volatility is a retrospective measurement of actual pricing
variations whereas implied volatility is the theoretical price of an
asset taking into account actual prices, historical volatility, a time
component and the risk free rate within a pricing model such as the
Black-Scholes model. Both historical and implied volatility have
recently declined to cycle lows in many asset classes. The consensus
call is for continued calm waters and a potential further decrease in
volatility. The consensus call for tame volatility may be
underestimating three potential drivers to higher volatility this year:
rising inflation and Federal Reserve policy, a taper tantrum and
The most popular measure of market volatility in the US is the CBOE
Market Volatility Index (the “VIX”) which is also known rather ominously
as the “fear gauge.” The VIX measures a weighted average of the
implied volatility of a wide range of S&P 500 options with a 30 day
maturity. Quite simply, the VIX is the implied volatility of the
S&P 500 and is frequently thought of as the market’s broad
expectation of volatility over the next 30 day period. The VIX has been
on a downward trajectory since 2010.The VIX has an audience across asset classes as it can give insight into
the short term biases and leanings of US equity market participants.
To be clear, the VIX is one tool to measure perceived volatility and
although a high VIX or an upward trend is most often the result of a
declining equity market, the gauge can increase as well when call
holders refuse to sell options absent a larger premium. Thus, the VIX
can be a measure of upside or downside moves with higher numbers
representing the anticipation of sharper moves. Somewhat ironically,
there are many instances where higher VIX prices correlate strongly to
higher prices in the S&P 500 as the fear dissipates and markets
The VIX and other measurements of volatility have continued to trend
down for many reasons including the fact that the world’s central banks
have maintained highly accommodative monetary policies. The European
Central Bank has just announced a program of direct asset purchases
including the cessation of the “sterilization” of their current markets
program. Moreover, secondary central banks like the Bank of Mexico have
cut rates in an effort to spur higher inflation. Assuming a direct
correlation between liquidity and volatility, all of these programs
should act as a governor to higher volatility. Other reasons offered to
explain the calmness in markets include exceedingly low trading volumes,
range bound markets, recently improving economic data and fewer
economic surprises, the transparency of corporate reporting, and the
perception that there is no immediate catalyst to drive volatility
Although the trend in volatility is clearly downwards, current
complacency should not be mistaken for a permanent drift to lower levels
without significant bumps higher and mini-reversals within the trends.
Once again, investors are putting their faith into central banks which
are doing the one thing that they ostensibly know how to do and have
done continuously since 2008 – providing ever increasing amounts of
liquidity. To be sure, the ultimate effect of non-traditional monetary
policy is unknown and the Federal Reserve and the Bank of England are
poised to withdraw some of their stimulus in the medium term. Already,
markets are pricing in rate hikes in the US for mid-2015 yet doing so
without increased volatility. It is reasonable to suggest that the
greatest risk to increased volatility and general market stability may
be a mismatch between Federal Reserve policies, the expectations of the
bond market and microeconomic data. This triumvirate of fast friends
may find itself in an increasingly uncomfortable alliance should US
inflation data significantly or unexpectedly increase. Admittedly,
higher US inflation in a world currently exporting deflation to US
shores is not likely to result in the sustained kind. However, the
prospect of Chair Yellen attempting to explain away asymmetric inflation
readings as transitory should push up volatility in the bond market.
There is also sensibility in remembering that monetary policy changes
frequently take longer to translate to market prices than assumed. It is
quite possible that the lingering effects of central bank liquidity
will not be felt as a primary cause of higher volatility but rather a
second derivative premised upon some otherwise routine market upheaval.
When long positions are longer and short positions are shorter, based
upon liquidity rather than fundamentals, the correlation between
liquidity and volatility cited as calming the markets may cut both ways.
Increased liquidity may provide for smooth markets at the outset but
higher levels of risk may creep upon casually disciplined risk managers
and with it the miasma of higher volatility.
Another reason that volatility could creep higher is the possibility of a
“taper tantrum” over the final end of Quantitative Easing. As an
analogue one need only to look at the increase in volatility as measured
by the VIX after QE2 ended in June of 2011.The Federal Reserve’s “stock versus flow” argument will be put to the
ultimate test assuming tapering continues apace and QE ends toward the
end of 2014.
Volatility may also temporarily and dramatically increase due to
unexpected geopolitical events. There is a mini civil war in Ukraine
right now and it threatens to draw European powers into supporting a
proxy contest for Eastern Ukraine between Russia and the West. While
Europeans go about deciding where to holiday this summer, the conflict
in Ukraine is likely to remain in a sort of pressure cooked stasis. Once
the weather turns cold and natural gas for heating is no longer an
abstraction the conflict in Ukraine will either resolve quickly or find
another gear. Beyond Ukraine, nuclear negotiations with Iran continue to
simmer, China and Japan yap at each other and Assad kills off his
critics in Syria. Any of these issue may cause a spike in volatility and
to expect all of these issues to transpire exactly as a game planned
seems rather naïve.
It is true that volatility has decreased. The CBOE Commitments of
Traders Report for VIX futures shows a significant net long position for
financial players confirming the bias to groupthink towards
increasingly lower volatility. This tendency towards anticipating ever
decreasing or steadily low volatility flies in the face of the fact that
the VIX currently trades at a 45% discount to its longer term
historical price average of $20. The odds of a temporary spike in
volatility are very good over the remainder of the year and a reversal
to slightly higher trend volatility is especially plausible should
microeconomic conditions warrant even a slight rethink of monetary
policy scenarios. To profit from volatility, is usually to buy it when
it is not needed, rather than when the consensus theory is
“unexpectedly” being pilloried and volatility is exploding higher.
Discussion of article "MQL5 for Newbies: Guide to Using Technical Indicators in Expert Advisors"
Sergey Golubev, 2014.02.27 16:46
Introduction to Technical Indicators (based on dailyfx aticle)
Trend following indicators were created to help traders trade currency
pairs that are trending up or trending down. We have all heard the
phrase “the trend is your friend.” These indicators can help point out
the direction of the trend and can tell us if a trend actually exists.
A Moving Average (MA for short) is a technical tool that averages a
currency pair’s price over a period of time. The smoothing effect this
has on the chart helps give a clearer indication on what direction the
pair is moving… either up, down, or sideways. There are a variety of
moving averages to choose from. Simple Moving Averages and Exponential
Moving Averages are by far the most popular.
Ichimoku is a complicated looking trend assistant that turns out to be
much simpler than it initially appears. This Japanese indicator was
created to be a standalone indicator that shows current trends, displays
support/resistance levels, and indicates when a trend has likely
reversed. Ichimoku roughly translates to “one glance” since it is meant
to be a quick way to see how price is behaving on a chart.
The Average Direction Index takes a different method when it comes to
analyzing trends. It won’t tell you whether price is trending up or
down, but it will tell you if price is trending or is ranging. This
makes it the perfect filter for either a range or trend strategy by
making sure you are trading based on current market conditions.
Oscillators give traders an idea of how momentum is developing on a
specific currency pair. When price treks higher, oscillators will move
higher. When price drops lower, oscillators will move lower. Whenever
oscillators reach an extreme level, it might be time to look for price
to turn back around to the mean. However, just because an oscillator
reaches “Overbought” or “Oversold” levels doesn’t mean we should try to
call a top or a bottom. Oscillators can stay at extreme levels for a
long time, so we need to wait for a valid sign before trading.
The Relative Strength Index is arguably the most popular oscillator out
there. A big component of its formula is the ratio between the average
gain and average loss over the last 14 periods. The RSI is bound between
0 – 100 and is considered overbought above 70 and oversold when below
30. Traders generally look to sell when 70 is crossed from above and
look to buy when 30 is crossed from below.
Stochastics offer traders a different approach to calculate price
oscillations by tracking how far the current price is from the lowest
low of the last X number of periods. This distance is then divided by
the difference between the high and low price during the same number of
periods. The line created, %K, is then used to create a moving average,
%D, that is placed directly on top of the %K. The result is two lines
moving between 0-100 with overbought and oversold levels at 80 and 20.
Traders can wait for the two lines to crosses while in overbought or
oversold territories or they can look for divergence between the
stochastic and the actual price before placing a trade.
The Commodity Channel Index is different than many oscillators in that
there is no limit to how high or how low it can go. It uses 0 as a
centerline with overbought and oversold levels starting at +100 and
-100. Traders look to sell breaks below +100 and buy breaks above -100.
To see some real examples of the CCI in action,
The Moving Average Convergence/Divergence tracks the difference between
two EMA lines, the 12 EMA and 26 EMA. The difference between the two
EMAs is then drawn on a sub-chart (called the MACD line) with a 9 EMA
drawn directly on top of it (called the Signal line). Traders then look
to buy when the MACD line crosses above the signal line and look to sell
when the MACD line crosses below the signal line. There are also
opportunities to trade divergence between the MACD and price.
Volatility measures how large the upswings and downswings are for a
particular currency pair. When a currency’s price fluctuates wildly up
and down it is said to have high volatility. Whereas a currency pair
that does not fluctuate as much is said to have low volatility. It’s
important to note how volatile a currency pair is before opening a
trade, so we can take that into consideration with picking our trade
size and stop and limit levels.
Bollinger Bands print 3 lines directly on top of the price chart. The
middle ‘band’ is a 20-period simple moving average with an upper and low
‘band’ that are drawn 2 standard deviations above and below the 20 MA.
This means the more volatile the pair is, the wider the outer bands will
become, giving the Bollinger Bands the ability to be used universally
across currency pairs no matter how they behave. The wider the bands,
the more volatile the pair. Most common uses for Bollinger Bands are
trying to trade double tops/bottoms that hit an upper or lower band or
looking to trade bounces off an outer band in the direction of the
Bollinger Bands® is a registered trademark of John Bollinger.
The Average True Range tells us the average distance between the high
and low price over the last X number of bars (typically 14). This
indicator is presented in pips where the higher the ATR gets, the more
volatile the pair, and vice versa. This makes it a perfect tool to
measure volatility and also can be a huge help when selecting where we
should set our stop losses.
Being one of the older technical indicators, Pivot Points are one of
the most widely used in all markets including equities, commodities, and
Forex. They are created using a formula composed of high, low and close
prices for the previous period. There is a central pivot line and
subsequent support lines and resistance lines surrounding it. Traders
use these lines as potential support and resistance levels, levels that
price might have a difficult time breaking through.
Price channels or Donchian Channels are lines above and below recent
price action that show the high and low prices over an extended period
of time These lines can then act as support or resistance if price comes
into contact with them again. A common use for Donchian channels is
trading a break of a line in the direction of the overall trend. This
strategy was made famous by Richard Dennis’ Turtle Traders where Dennis
took everyday people and was able to successfully teach them how to
trade futures based on price channels.
USD/CNH Intra-Day Fundamentals: China Consumer Price Index and 42 pips price movement
2016-10-14 01:30 GMT | [CNY - CPI]
if actual > forecast (or previous one) = good for currency (for CNY in our case)
[CNY - CPI] = Change in the price of goods and services purchased by consumers.
From RTT News article:
USD/CNH M5: 42 pips range price movement by China Consumer Price Index news event
Dollar Index Overview: breaking 98.13 resistance for 98.33/58 bullish target (adapted from the article)
is located above SMA with period 100 (100 SMA) and SMA with the period
200 (200 SMA) for the bullish market condition. The price is on breaking 98.13 to above for the bullish trend to be continuing with 98.33/58 bullish target.
If the price will break 98.13 resistance level so we may see the bullish trend to be continuing.If price will break 95.69 support so the reversal of the daily price movement from the bullish to the primary bearish trend will be started.If not so the price will be ranging within the levels.
EUR/USD Rebounds From Weekly Lows (based on the article)
Daily price was on the breakdown with the bearish reversal: the price was bounced from one week low at 1.0985 to above for the ranging bearish condition to be started:
"The EUR/USD is beginning to pair losses after closing lower for 3
consecutive sessions and declining as much as 219 pips for the week. The
current daily low for the EUR/SUD resides at 1.0985, but technical
traders will continue to monitor the psychological 1.1000 level going
into tomorrow’s University of Michigan’s Confidence figures and Janet
Yellen’s speech at the Boston Fed conference. Both of these events are
marked as high importance events, with both having the ability to shift
the direction of the EUR/USD."
Intra-Day Fundamentals - EUR/USD, USD/CAD and NZD/USD: U.S. Advance Retail Sales2016-10-14 12:30 GMT | [USD - Retail Sales]
if actual > forecast (or previous one) = good for currency (for USD in our case)
[USD - Retail Sales] = Change in the total value of sales at the retail level.
From MarketWatch article: U.S. retail sales snap back in September
"Sales at U.S. retail stores rebounded in September, with auto dealers
and gas stations racking up the biggest gains, in a sign consumers are
still spending fast enough to keep the economy on solid ground. Retail
sales rose 0.6% last month to snap back from a small decline in August
that was the first in five months. Economists surveyed by MarketWatch
had forecast a 0.7% increase."
EUR/USD M5: 25 pips range price movement by U.S. Advance Retail Sales news events
USD/CAD M5: 23 pips range price movement by U.S. Advance Retail Sales news events
NZD/USD M5: 24 pips price movement by U.S. Advance Retail Sales news events
Intra-Day Fundamentals - EUR/USD and DAX Index: Fed Chair Yellen Speaks at the Federal Reserve Bank2016-10-14 17:30 GMT | [USD - Fed Chair Yellen Speaks]
[USD - Fed Chair Yellen Speaks] = Speech named "Macroeconomic Research After the Crisis" at the Federal Reserve Bank of Boston’s Annual Research Conference.
From Bloomberg article: Yellen Sees ‘Plausible Ways’ Hot Economy Could Heal Growth
EUR/USD M5: 24 pips price movement by Fed Chair Yellen Speaks news events
DAX Index M5 price movement by Fed Chair Yellen Speaks news events
Weekly Outlook: 2016, October 16 - October 23 (based on the article)
EUR/USD Weekly Outlook: 2016, October 16 - October 23 (based on the article)
Dollar Index - "As always, Dollar traders should also keep
the pulse on risk trends. Full-tilt risk appetite is unlikely, but it
would nevertheless reinforce rate forecasts for the Fed and thereby a
Dollar advantage. A neutral bearing would have far more interpretation
for currency traders. Jumping to panicked risk aversion, we would see
the long-dormant return of the Greenback’s liquidity appeal. The
increasingly probable and problematic (for the Dollar) scenario comes in
the belly of this spectrum with modest risk aversion. While benchmarks
like the S&P 500 would fall in this environment, so too would USD as it loses its interest rate advantage premium."