SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk SECURITIES DIVISION Prepared by a Goldman Sachs sales and trading desk, which may have a position in the products mentioned that is inconsistent with the views expressed in this material In evaluating this material, you should know that it could have been previously provided to other clients and/or internal Goldman Sachs personnel, who could have already acted on it The views or ideas expressed here are those of the desk and/or author only and are not an “official view” of Goldman Sachs ; others at Goldman Sachs may have opinions or may express views that are contrary to those herein This material is not independent advice and is not a product of Global Investment Research This material is a solicitation of derivatives business generally, only for the purposes of, and to the extent it is subject to, CFTC Regulations 1 71 and 23 605 GS Techs Technical Analysis Guidebook Sheba Jafari CMT FICC Strats April 2016 SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk “ The art of technical analysis – for it is an art – is to identify trend changes at an early stage and to maintain an investment position until the weight of the evidence indicates that the trend has reversed.” Martin Pring (2002) “Technical Analysis Explained” A rising trend (uptrend) occurs when price makes higher peaks and higher lows. A falling trend (downtrend) occurs when price makes lower peaks and lower lows. A flat trend (range ) occurs when price trades sideways without any significant direction. Defining Technical Analysis... SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk There are a few basic assumptions rooted in basic technical analysis which is also very well linked to basic economic theory: Prices are determined solely by the interaction of supply and demand Prices tend to move in trends Shifts in supply and demand cause reversals in trends Shifts in supply and demand can be detected in charts Chart patterns tend to repeat themselves Robert D. Edwards and John Magee “Technical Analysis of Stock Trends” Defining Technical Analysis... SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Defining Technical Analysis... Psychology. Technical Analysis is a way to quantify and visualize market sentiment and conviction. Discipline. Assists in disciplining trading decisions. Objectivity. In setting clear parameters, it is possible to create buy/sell signals that are unambiguous. A Safety Check. It's quick to give you indications that you are wrong in your view. Early Warning. Gives early warning that a market is becoming stretched or susceptible to a correction Markets are not necessarily efficient. Markets are not necessarily efficient, investors don’t always act rationally. Investors have biases, herding behavior, information inequality, noise and other similar limitations. W hat technical analysis will provide to the fundamentalist... SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk A few guidelines to keep in mind... None of the indicators or patterns can be used in isolation When developing a market view envisage a pair of scales – it’s about evaluating whether there is an imbalance of patterns and indicators pointing in one direction Stick to a process , defaults and methodology Always use multi - time frame analysis as a starting point Weigh the importance of the indicator according to the appropriate time frame. It’s often easier to trade with the trend rather than against it SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk List of Contents ... The following topics are covered in the following slides: 1. Basic introduction to CANDLESTICK PATTERNS 2. DEFINE YOUR TREND using pivots/confluence areas 3. Enhance your analysis with FIBONACCI RETRACEMENTS 4. Introduction to ELLIOTT WAVE THEORY (EWT) 5. How to use FIBONACCI EXTENSIONS with EWT 6. How to use STRUCTURES/PATTERNS to derive targets 7. The various uses of a (SIMPLE) MOVING AVERAGES 8. Uncovering signals of exhaustion with OSCILLATORS 9. How CORRELATIONS can strengthen/stress test views 10. Finally a GLOSSARY of TERMINOLOGY SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Candlestick Patterns: Understanding basics ... Candlesticks can be used to determine potential reversals, exhaustions, the start of a trend and/or the strength of the participation. It takes anywhere from one to seven candlesticks to make a pattern from which to determine a particular signal. The body of the candle represents the open and close of a session (daily/weekly/monthly) also considered the area of “market acceptance”. The shadow represents the intraday high and low of the session, also considered the area of “rejection”. A white candle is an up day, a filled candle is a down day. White = up on the session Filled = down on the session Small/no body = unchanged Open Close High Low Low High High Low Close Open Open Close SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Bullish/ Bearish period reversals ... Patterns are made by the relative position of the body and the shadow, the location of the candlestick in relation to the day prior day and whether or not the candlestick pattern is confirmed the next day. Because candlestick patterns are used to signal a turning point, it’s important that there is a preceding trend (either uptrend or downtrend). BEARISH Key Reversal – Posted where the market is in an uptrend and in this particular period trades to a new high for the trend but subsequently reverses lower to close back below the previous period’s low BULLISH Key Reversal – Posted where the market is in a downtrend and in this particular period trades to a new low for the trend but subsequently reverses higher to close back above the previous period’s high SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Indecision and exhaustion signals... The shadow is a vertical line from the real body up to the high or down to the low. A long shadow represents an inability for the market to maintain its highs or lows. DOJI (Indecision) – Posted where the market is in a trend, but at the extreme of the move looses momentum. T he open/close should be at a very similar levels. Particularly powerful if immediately followed by a sharp close basis move in the opposing direction HAMMER (Exhaustion ) – Posted when the market moves to a new extreme, but closes near the open, leaving a long tail or shadow against the extreme of the trend. The pattern below is a hammer. If reversed then it is called a “Shooting Star” SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk U sing multiple time frames analysis... SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Defining your trend: Blank canvas... Start with a clean canvas, whether “ghosting” all annotations, beginning brand new, or even just turning the chart upside down. Stick to minimal number of oscillator/momentum indicators Start with four moving averages and eliminate those that are less relevant to price Start with multiple annotations and do not be afraid of having a messy canvas. Then eliminate those that are less relevant to price The primary trend is lower The secondary trends are higher and short - lived SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Defining your trend: Starting lines ... Start with a clean canvas, whether “ghosting” all annotations, beginning brand new, or even just turning the chart upside down. Stick to minimal number of oscillator/momentum indicators Start with four moving averages and eliminate those that are less relevant to price Start with multiple annotations and do not be afraid of having a messy canvas. Then eliminate those that are less relevant to price The primary trend is lower The secondary trends are higher and short - lived SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Defining your trend: Confluence areas... A confluence zone is a pivot area where multiple levels are merged together. These zones are most important as future target areas and in adding confidence to breaks In this example, the monthly close above 84.83 - 84.19 was particularly important as it broke a series of prior highs and lows from Nov. ’09 to Mar. ’12. Hence why it is important to continually “refresh” the chart, renew trendlines, erase prior biases SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Defining your trend: Finished product... The right side of the chart (near - term price action) should always be the most relevant. This chart shows a selection of pattern, moving averages and trendlines for the current environment. This selection will likely change over time Hence why it is important to continually “refresh” the chart, renew trendlines, erase prior biases SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Defining your trend: Fibonacci levels ... The Fibonacci Sequence is a series of numbers ( 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55...) each number is the sum of the two preceding numbers. Each number is 1.618 times the preceding number. The sequence goes on to infinity. The key (golden) ratio is 61.8% 38.2% is found by dividing one number by the number that is two places to the right (for example 13/34= 0.382) 23.6% is derived by diving one number by the number that is 3 places to the right And 76.4% is simply 100 - 23.6 SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Elliott wave: Quick introduction ... Elliott wave theory is an attempt to define a structure to the market. It is based on the notion that the market behaves in an irregular cyclic manner. Defining the structure allows us to determine where the market is and where it may be going. The chart to the right shows an idealized setup within an upward/bull market. There are only two types of “waves”; impulsive waves and corrective waves. 1. Impulsive moves happen in 5 - waves (either in a bull trend or bear trend ) in the direction of the trend. 2. Corrective waves happen in either 3 - or 5 - waves (ABCs or triangle ) against the trend’s direction. SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Elliott wave: Quick introduction... Although there are numerous “guidelines”, there are only three specified rules. Each wave is subdivided into minor waves and therefore the rules apply on all variations of time frames. Rule 1. Wave 2 cannot retrace more than 100% of Wave 1 Rule 2. Wave 3 can never be the shortest of the three waves (it’s often the longest ) Rule 3. Wave 4 can never overlap with Wave 1 SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Elliott wave: Quick introduction ... The other thing to remember is that every wave is related to the other by some Fibonacci ratio (retracement or extension). We’ll go into more detail on this but a quick summary below: Wave 2 can retrace 100% of wave 1 but generally stops between 50 - 76.4% Wave 3 is typically 1.618 or 2.618 times the length of wave 1 Wave 4 can retrace between 23.6% and 50% of the length of wave 3 Wave 5 can be 1.00, 1.618 or 2.618 times the length of wave 1 SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Elliott wave: Quick introduction ... Impulsive moves happen in 5 - waves (either in a bull trend or bear trend) Corrective waves happen in either 3 - or 5 - waves (ABC or triangle) In this example, USDBRL rose in a 5 - wave impulsive sequence from the mid - ’11 lows up to the Aug. ‘13 high. Since then, an ABC type sideways pullback has developed and nearly completed. It should be attractive to start looking for signs of the market basing again (Impulsive) (Corrective) SECURITIES DIVISION Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or co uns el. This material is intended for illustrative purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recom men dations, and is no indication (implied or express) as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon t he client’s investment objectives. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. FX and Rates Strategies From the Trading Desk Elliott wave: Quick introduction ... The first rule to remember is that wave 2 cannot extend beyond the bottom of wave - 1 If it does by a “notable margin” (there is some discussion that very minimal overlap is possible in OTC markets) it invalidates the count, implying the market is either still in corrective process or in an opposing trend. As long as the low from the base of wave - 2 does not exceed wave - 1 a wave - 5 rally can still take place 1 2 3 4 5 1 2 76.4% retrace As a guideline, wave 2 tends to retrace near around 76.4% of the full distance of wave 1