SECURITIES DIVISION SECURITIES DIVISION GS Techs Technical Analysis Guidebook Sheba Jafari CMT FICC Strats 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 April 2016 to, CFTC Regulations 1.71 and 23.605. FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Defining Technical Analysis… “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. FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Defining Technical Analysis… 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” FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Defining Technical Analysis… What technical analysis will provide to the fundamentalist… 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. FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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. High High High Open Close Open Close Close Open Low Low Low White = up on the session Filled = down on the session Small/no body = unchanged FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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 BULLISH Key Reversal – Posted where the market is in a downtrend and in this particular period trades to a new high for the trend but subsequently this particular period trades to a new low for the trend but subsequently reverses lower to close back below the previous period’s low reverses higher to close back above the previous period’s high FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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 HAMMER (Exhaustion) – Posted when the market moves to a new extreme of the move looses momentum. The open/close should be at a very extreme, but closes near the open, leaving a long tail or shadow against the similar levels. Particularly powerful if immediately followed by a sharp close extreme of the trend. The pattern below is a hammer. If reversed then it is basis move in the opposing direction called a “Shooting Star” FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. Using multiple time frames analysis… SECURITIES DIVISION FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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. The primary trend is lower Stick to minimal number of oscillator/momentum indicators The secondary trends are higher Start with four moving and short-lived 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 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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. The primary trend is lower Stick to minimal number of oscillator/momentum indicators The secondary trends are higher Start with four moving averages and short-lived 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 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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. FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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. FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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 (Corrective) 5-wave impulsive sequence from the mid-’11 lows up to the Aug. ‘13 high. Since then, an ABC type sideways pullback has developed (Impulsive) and nearly completed. It should be attractive to start looking for signs of the market basing again FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION 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 As a guideline, wave 2 tends to wave-2 does not exceed wave-1 a 5 retrace near around 76.4% of the full wave-5 rally can still take place distance of wave 1 3 1 4 1 2 76.4% retrace 2 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Elliott wave: Quick introduction… The second rule to remember is that wave 3 cannot be the shortest of the three impulse waves. It is often the longest but it doesn’t have to be. As long as wave 3 undergoes a greater percentage movement than either wave 1 or 5, this rule is satisfied. Moreover, wave 3 always goes beyond the end of wave 1. In this example wave 3 is equal in In this example waves 1 and 5 are length to wave 1 and shorter than 5 equal and wave 3 is the longest; this wave 5. This is incorrect is common and satisfies the rule 3 5 5 4 3 1 3 1 4 1 4 2 2 2 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Elliott wave: Quick introduction… The third rule states that wave 4 cannot enter wave 1 territory. If it does by a “notable margin” (again) it invalidates that count implying that an A-B-C correction is already in place and the market is beginning a sequence in the other direction (reversing back in the direction of the previous trend). In this example, wave 4 peaks below Here, wave-4 moves above the base the base of wave-1 a wave-5 decline 5 of wave-1; a 5-wave sequence can follows thereafter no longer be in the process 3 4 2 1 B 4 1 Base of A 2 wave-1 3 C 5 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Elliott wave: Quick introduction… A few guidelines to follow... Wave-2 tends to Wave-4 tends to be a be an ABC triangle 5 b d B 3 A 1 e 4 c C a 2 A wedge at the lows is a A wedge at the highs leading diagonal is an ending diagonal 5 3 1 4 2 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Elliott wave: Developing targets… Each wave (from 2 to 5) has a guideline target based on the length/magnitude of the prior move. In other words, using Fibonacci retracement/extension levels can help determine the next step in the sequence. Wave 2 can often retrace between Investors are convinced that the bear 50% and 76.4% of Wave 1; it cannot 5 market is back to stay; this wave is exceed the beginning of Wave 1 marked by anxiety/lack of confidence 3 1 1 4 1 2 2 2 50% retrace 76.4% retrace FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Elliott wave: Developing targets… Each wave (from 2 to 5) has a guideline target based on the length/magnitude of the prior move. In other words, using Fibonacci retracement/extension levels can help determine the next step in the sequence. Wave 3 is often 1.618 or 2.618 times Wave 3 is the most powerful and wave 1 (sometimes more). If more 5 impulsive. Confidence and volume than 1.618, its termed “extended” returns; participation period 3 1.618 times W1 4 2.618 times W1 1 1 1 2 2 2 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Elliott Wave: Use of Extensions… If you’re not sure what the wave count is, start with a 1.00 extension target. When that target has been met and exceeded, you know the market is more likely impulsive. The next target is derived is a 1.618 and 2.618 target. FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Elliott wave: Developing targets… Each wave (from 2 to 5) has a guideline target based on the length/magnitude of the prior move. In other words, using Fibonacci retracement/extension levels can help determine the next step in the sequence. Wave 4 is between 23.6% and 50% Surprising and disappointing; doubt the length of wave 3. It also cannot 5 starts to prevail. People want to hold overlap with Wave 1 territory on, but start to give back 3 3 4 3 1 1 23.6- 50% of W3 Cannot go 2 2 below W1 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Elliott wave: Developing targets… Each wave (from 2 to 5) has a guideline target based on the length/magnitude of the prior move. In other words, using Fibonacci retracement/extension levels can help determine the next step in the sequence. Wave 5 is dependant on if Wave 3 is extended or not; if extended then 1.00, 1.618 or 2.618 times Wave 1. If Renewed momentum and often Wave 3 is not extended Wave 5 is 5 saturation, the last big move before 0.618, 1.00 or 1.618 time Wave 1-3 distribution starts to take over 3 Extended 3 4 Not Extended 3 1 1 1 Wave 5 is a Wave 5 is a measure of 2 2 2 measure of Wave 1 Wave 1-3 As a reminder, Wave 3 is extended if it is greater than 1.618 times Wave 1 FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Elliott wave: Corrective patterns… There are three categories of corrections; a zigzag, flat or triangle pattern. A zigzag is the most common. It’s There are more complex double and classified as a sharp correction (as it triple zigzags which are two or three is deeper than a flat sideways basic ABC structures separated by correction); subdivides into ABC; A an X wave (which is broken into 3 and C are near equal in length minor waves) B A C A B C C A B A X C B FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Elliott wave: Corrective patterns… There are three categories of corrections; a zigzag, flat or triangle pattern. A flat correction is a sideways consolidation which is An irregular flat occurs when wave B overshoots the top of typically broken up into 3-3-5 waves; wave A has a minor wave A. Wave and B are still 3 wave structures (abc’s); abc, wave B has a minor abc and C has a minor 1-2-3-4-5 wave C has a minor 1-2-3-4-5 B c B c b ii b ii a a i i a iv a iv b b A A c iii c iii C v C v FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Elliott wave: Corrective patterns… There are three categories of corrections; a zigzag, flat or triangle pattern. A triangle pattern is composed of five contracting swings An expanding triangle are very infrequent. Composed of each with three minor waves to make a complete ABCDE. five expanding swings each with three minor waves to Wave E tends to end midway through the pattern make a complete ABCDE D B B D E C A C A E FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Structures and Targets: Triangles… Triangles tend to be continuation patterns but don’t always have to To calculate the target of the Target pattern you project the height of be. The shorter the time-frame the the pattern as it begins forming more likely to have a break in the from the break point direction of the preceding trend (these are often called “pennants”). As the market narrows into the apex of the pattern, volatility also Height Break narrows. Therefore the break tends of the point to be associated with a pop in pattern volatility. The break generally occurs within 10% of the apex. Same target calculation and structure applies in inverse FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Double Top and Bottom… Double tops/bottoms are reversal Top Top patterns. Increased volatility related to market exhaustion is often seen as trends move to extremes. One of the ways this manifests itself is in markets not being able to build the necessary momentum to break a certain price point at the extreme of a trend on Neckline repeated attempts This is likely to be caused either by the market becoming over positioned and therefore unable to break through extremes or the news flow changing and a segment of the Target market seeing the prior price To calculate the target you take the distance from the trend extreme as a good risk/reward entry across the two “Tops” to the “Neckline” and extrapolate this distance from the “Neckline” itself point for counter-trend trades Same target calculation and structure applies in inverse FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Head and Shoulders… A head and shoulders pattern is Head also a reversal pattern and therefore must have a preceding trend. Shoulder Shoulder This is essentially another reflection of the market entering a period of increased volatility at the extreme of a trend and another indicator of exhaustion Neckline The right shoulder forms where the To calculate the target you take the market attempts to resume the distance from the top of the “Head” trend and regain the highs but fails to the “Neckline” which sits at the to do so. Therefore oftentimes the base of the “Shoulders” and project this distance from the “Neckline” neckline will have a “right-tilt”. Target Same target calculation and structure applies in inverse FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Structures and Targets: Wedges… Wedge formations are often longer-term reversal patterns. Breakdown Trend extremes are often Point associated with a loss of underlying momentum. This can manifest itself in one of two ways; (1) extreme volatility with the market making little real progress with the trend or Market is initially in a strong uptrend, but at the extreme (2) the trend continuing but in an of the trend the move begins to lose momentum and increasingly slow and over-lapping becomes increasingly overlapping manner. Once the market breaks the trend across the interim lows it is often the beginning of a large downside With regards to wave theory, correction as the market will have little in the way of wedges tend to be 5th waves. They support to buy the currency pair against and will likely be over positioned are also called “ending waves” or “diverging waves”. The market will often form negative momentum or oscillator divergence against the gradual new highs In fundamental terms, this pattern is often seen as markets move an extreme distance from “fair value” Same target calculation and structure applies in inverse FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Simple Moving Averages: Introduction… A moving average shows the average closing price for a market over the past ‘x’-periods There are multiple types of moving averages (simple, exponential, weighted, triangular… etc.) Again to avoid subjectivity it’s advisable to keep periods CONSTANT across various TIME FRAMES of chart The periods of moving average which have a good track record in FX: 21-period – part of the Fibonacci Sequence (see below) 55-period – part of the Fibonacci Sequence (see below) 100-period – market accepted standard 200-period – market accepted standard FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Simple Moving Averages: Multiple Uses… There are multiple uses of simple moving averages: As support and resistance Bullish and bearish crossovers Defining whether a trend is stretched or extreme Defining whether a market is “trend ready” FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Stretched or extreme… In Oct. ’87 the index reached 167 weekly closes above the 55-wma. When it finally broke, the S&P dropped ~24% from the pivot (a total of 35% from the high). On Friday 21st August the S&P reached another 167 consecutive before dropping ~10% from the break (a total of 13% from the high). It proved to be a very useful signal. FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Simple Moving Averages: Trend-ready?… A cluster of moving averages … the “calm before a storm”? A confluence of moving averages can give a similar message to when a market’s volatility is reaching extreme lows This will often precede a significant directional move The signal can then be heightened when seen near the apex of a triangle FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur. SECURITIES DIVISION Momentum Indicators/ Oscillators: Introduction… Oscillators are a derivative form of technical analysis. Their primary purpose is to improve the risk/reward associated with trading decisions and to act as an early warning signal when a market is susceptible to a turn/correction. An oscillator is calculated from two moving averages. It represents mathematically the relationship between the two moving averages, usually in the form of a ratio. Two primary forms of implementation: As an “overbought” or “oversold” indicator As an exhaustion signal where they develop what in technical terminology is described as positive or negative “divergence” FX and Rates Strategies Goldman Sachs does not provide accounting, tax or legal advice; such matters should be discussed with your advisors and or counsel. This material is intended for illustrative Past performance is not an indicator of future purposes only and is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and is no indication (implied or express) results. Future returns are not guaranteed, From the Trading Desk as to the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. and a loss of original investment may occur.
Enter the password to open this PDF file:
-
-
-
-
-
-
-
-
-
-
-
-