For anyone who wants to employ technical analysis in their trading, there is that constant question—which indicators to use? Just taking a glance at the range of indicators offered in any TA package can likely discourage any but the most diehard chartist. In the next 500 or so words, this article intends to rescue you from that morass and provide you with a method that can KISS—Keep It Short and Simple—your technical analysis to the next level. It will also provide a couple of examples.
One of the key mantras rolled out by technical market mavens over the decades is only ever to trade in the direction of the prevailing trend. But what is the easiest and quickest way to do this? Well, first up, you have to determine in which direction—up, down, or sideways—you market is trending. That’s it—there’s only three directions. Surely it can’t be that difficult? Truth is, it’s sometimes maddeningly difficult. So, let’s first of all determine a method to work out if a market is trending up or down. We’ll use another indicator to tell us if it’s trending sideways.
The technical indicator for the KISS method is a 13-period exponential moving average (EXMA), tagged to the period close. Why exponential? Because, of the three main choices—simple, weighted, and exponential, it is the exponential that makes the most sense. There’s not enough room here to explain the differences, but if you don’t know what they are, then do yourself a great benefit and perform a little research.
For day traders, a good phase to take as your trending guide is a weekly market, with each period on the bar chart representing five days of trading. If the current EXMA is higher than the previous period’s close, then take the market as trending up. If it’s lower, then take the market as trending down.
Next, look at the daily EXMA. If the weekly EXMA provides the trend, then the daily EXMA provides your timing. If your weekly EXMA is higher than the previous week, and your daily EXMA is higher than the previous day, then long is the position to take. If both are lower, then the only position to take is short. If there is a mismatch—weekly up, but daily down, or vice versa—then the market is trending sideways, and the best bet is to stay flat. And that’s it! Couldn’t be more KISS than that!
Note: for traders who take a longer-term view, you could use a monthly EXMA for your trend indicator, and a weekly for your timing. Shorter-term traders, such as day traders could use an hourly for the trend, and a 10-minute EXMA for the timing. Always aim for a 5:1 ratio for your EXMA pair.
Now, let’s take two examples. At the time of writing this article—May 11th, 2019, the EXMA indicators for these two markets are as follows:
| Market | EXMA Weekly from Previous Week | EXMA Daily from Previous Day | Position |
| Japanese Nikkei 225 Index | Lower | Lower | Short |
| US S&P 500 Index | Higher | Lower | Flat |
Our KISS system indicates that traders should be short in the Japanese stock market against flat in the S&P.
The KISS method is clear, unambiguous, and easy to deploy. It could also be automated to provide clear indications of a range of indicators, “at a glance”. Why not give it a try and see if KISSing your market works for you?
All essays, research and information found above represent the analysis and opinion of Leverate only. As such it may prove wrong and be a subject to change without notice. Opinions and analysis were based on data available to the author of the respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Leverate does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Leverate is not a Registered Securities Advisor. By reading Leverate’s reports you fully agree that they will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investment trading and speculation in any financial markets may involve risk of loss.e risk of loss.
Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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