Trading Aluminium Trading Aluminium Trading Aluminium Trading Aluminium The technical footprint within The technical footprint within the the Aluminium US Mid Aluminium US Mid West Premium swap. West Premium swap. The technical footprint within The technical footprint within the the Aluminium US Mid Aluminium US Mid West Premium swap. West Premium swap.
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Aluminium US Mid West Trans Premium Swap � The Aluminium US Mid West Premium Swap has a strong tendency to trend. This means that from a technical perspective there are a number of analytical tools that can take advantage of this. � Technical indicators on their own can have many flaws and be prone to giving off false signals. However used in conjunction with other indicators, they can increase the probability of a profitable return, compared to that of a singular indicator. This we hope to illustrate using the Aluminium US Mid West Premium Swap over a series of charts. � The analytics used in this presentation are standard tools that you would find on any chart package. No black box algorithms, just simple momentum indicators, with a trailing stop risk, and some disparity lines to stop trade entries at market extremes. � Although when used together they can increase the probability of success, they do not guarantee it. Markets that move from a trending condition to one that is ranging will need a different approach. The ADX line (as explained later) will help on detecting this, however if a system that is working suddenly starts to fail then the technical stance should be re-evaluated.
Contents Contents Contents Contents 1. Trading the trend – Exponential Moving Average (EMA) 2. Avoiding the range – Average Directional Index (ADX) 3. Avoiding being the wrong side of an extreme Move - MA Envelope 4. Momentum Indicator – Slow Stochastic 5. Risk – Using the Parabolic indicator as a trailing stop 6. Putting it all together Agenda
The Trend The Trend The Trend The Trend - - - Exponential Moving Average (EMA) - Exponential Moving Average (EMA) Exponential Moving Average (EMA) Exponential Moving Average (EMA) The Exponential moving average (EMA) differs from a simple moving average (MA) line because it is weighted to take into account the nearest data set, which makes it more responsive to market movements. The EMA can be used in numerous ways, above the line can be considered as a buy signal and below a sell signal, which is how we are using it. You can see on the chart above how the Aluminium premium becomes bullish as it moves above the EMA and Bearish below it. Agenda
The range The range – – Average Directional Index (ADX) Average Directional Index (ADX) The range The range – – Average Directional Index (ADX) Average Directional Index (ADX) The ADX is a non directional indicator that is purely designed to illustrate the potential for a market to trend. In theory, as long as the line is above 20 then regardless of direction there is an increased probability of the market trending. The Aluminium contract has remained in a trending condition since August 2015, creating an ideal trading environment. Agenda
Avoiding being the wrong side of an extreme Move Avoiding being the wrong side of an extreme Move Avoiding being the wrong side of an extreme Move Avoiding being the wrong side of an extreme Move - - - MA Envelope - MA Envelope MA Envelope MA Envelope The moving average envelope enables the trader to have a clear visual of the disparity of price from its mean As a rule if the price moves 6% from the MA it should move back to the mean price. You can see how the aluminium futures consistently reject the envelope and move back to the mean price allowing the trader more advantageous entry levels. Agenda
Momentum Indicator Momentum Indicator Momentum Indicator Momentum Indicator – – – Slow Stochastic – Slow Stochastic Slow Stochastic Slow Stochastic The slow stochastic is one of the most common momentum indicators. Price is compared to other prices within a set range; as prices slow, even if the trend continues, the oscillator will reflect this. This is a near perfect illustration using the Aluminium premium to show stochastics at their best. A stochastic can be considered overbought above 75 and oversold below 25. When the stochastic crosses below 75 the market is considered a Agenda sell and above 25 a buy.
Risk Risk Risk Risk – – – – Using the Parabolic indicator as a trailing stop Using the Parabolic indicator as a trailing stop Using the Parabolic indicator as a trailing stop Using the Parabolic indicator as a trailing stop We have used the parabolic indicator to manage the risk. You can see how this tracks the aluminium futures price for long periods as the market remains in trend. Agenda The parabolic works best in trending environments which is why it suits the Aluminium premium futures so well.
Putting it all together Putting it all together Putting it all together Putting it all together We now have a group of indicators that we want to use in conjunction with each other. We can see at point 1 on the chart how Aluminium futures moves above the EMA and at the same time the stochastic moves above the 25 line. As we are not on the outer envelope and the ADX line is above 20 a long trade could be entered at 0.058 cents on the 08/9/16 (DEC contract). We remain in trend until the parabolic stop is activated 30/11/15 at 0.09382 cents. A profit of 0.03582 cents per contract. Or US$19,742.55 per 1 futures contract was achieved.
Putting it all together Putting it all together Putting it all together Putting it all together � Technical Analysis is designed to work with a fundamental view. This technical was designed to increase probability by introducing different indicators to compliment not only each other but the Aluminium US Mid West Premium Swap . � From a traders perspective with a fundamental view on the market this can be useful. If the fundamental and the technical are telling the same story, then the probability of success will again increase. � If the technical and the fundamental are telling different story it may be worth looking for a higher probability trade elsewhere. � For a hedger, that is looking for some direction, the EMA, Stochastic and MA envelope will prove to be a useful tool on deciding when is best to hedge.
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