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?
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Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates
Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.
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 gathers strength to near 157.50 as Takaichi’s party wins snap elections
The USD/JPY pair attracts some buyers to around 157.45 during the early Asian session on Monday. The Japanese Yen weakens against the US Dollar after Japan’s ruling Liberal Democratic Party won an outright majority in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi.
Editors’ Picks
USD/JPY gathers strength to near 157.50 as Takaichi’s party wins snap elections
The USD/JPY pair attracts some buyers to around 157.45 during the early Asian session on Monday. The Japanese Yen weakens against the US Dollar after Japan’s ruling Liberal Democratic Party won an outright majority in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi.
Gold: Volatility persists in commodity space
After losing more than 8% to end the previous week, Gold 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. The US economic calendar will feature Nonfarm Payrolls and Consumer Price Index data for January, which could influence the market pricing of the Federal Reserve’s policy outlook and impact Gold’s performance.
AUD/USD eyes 0.7050 hurdle amid supportive fundamental backdrop
AUD/USD builds on Friday's goodish rebound from sub-0.6900 levels and kicks off the new week on a positive note, with bulls awaiting a sustained move and acceptance above mid-0.7000s before placing fresh bets. The widening RBA-Fed divergence, along with the upbeat market mood, acts as a tailwind for the risk-sensitive Aussie amid some follow-through US Dollar selling for the second straight day.
Week ahead: US NFP and CPI data to shake Fed cut bets, Japan election looms
US NFP and CPI data awaited after Warsh’s nomination as Fed chief. Yen traders lock gaze on Sunday’s snap election. UK and Eurozone Q4 GDP data also on the agenda. China CPI and PPI could reveal more weakness in domestic demand.
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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