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“Everyone this is kirk here again at option nalpha and this video. We re going going to talk about technical analysis. Indicators and signals. I think it s going to a good talk today nbecause we re going to get a little bit into the different types of technical analysis nindicators that are out there and then also talk about what really works.
And what doesn t first of all we want to just define what technical nanalysis is for those of you who don t know or are new. But it s basically just a methodology nfor forecasting. The direction of prices through the study of past market data primarily price nand volume over time. It s definitely been increasingly npopular.
Because of it s easy and visual nature of the indicators. Meaning you can see the nindicators on the screen. There s nothing abstract about it there s nothing out there you can visually see if something is a buy nor a sell. But that also falsely leads to the assumption that the markets are predictable.
I personally think this is one of the biggest npoints that i want to make in this video is that the visual nature and the easy to read nnature of technical analysis. Does not mean that it is predictable in determining the noutcome of the direction of a stock. I know that a lot of people fall into this npitfall earlier on in their trading career is that they see the technical analysis. Indicators nand.
It makes sense to them a logical basis. So then they assume that because it makes nsense and because they can see it that it therefore is predictable or you can basically nmake assumptions off of it or trading them profitably off of some of these indicators. I m here to tell you that that s just not nthe case. There s a couple of different types of technical nanalysis indicators out there or methodologies.
There s first your general support and resistance. The stock goes up it hits an area of resistance ncomes back down hits an area of support et cetera et. Cetera et. Cetera then you ve also got candlestick patterns.
These are patterns relating to the open and nclose of the price movement in the day relative to the high and low again. It s not the actual candlesticks themselves nbut. It s the patterns that evolve through these candlesticks. A three day or a four day pattern.
Might tell nyou something about what the stock might do in the future. Then we have chart patterns. Which are really npopular. Things like head and shoulder patterns.
Pennants nflags. All these different things cups and handles you probably heard them if you ve been involved nin trading. All of these different patterns that are out nthere that you can basically build and write and draw on it with all of your charts. Now in my honest opinion a lot of these nare subjective in nature.
What might look like a head and shoulders ntop to you might also look like an up trending pennant to another person you can t argue with that with regard to candlesticks chart patterns. Nsupport and resistance it is all subjective meaning it s what you see out of the charts. Nnot necessarily what may or may not be there since i m generally more of a math and numbers ntrader based on probabilities and statistics. I prefer to use indicators that give clear nbuy and sell signals on the charts.
That s just how i m wired. Obviously i want to go through some of these nexamples here. So we can start to lay the foundation in this video for how we can use nsignals that are less subjective. Then say chart patterns or candlesticks.
Things like nthat first thing that we re going to do is we re ngoing to look at a chart of spy. Now. This is the spy at the time that we re ndoing this video. This is actually the last two years on a daily nbasis.
What i ve done here is i ve over laid just nthe simple 15 day moving average. This is that green line that you see here moving averages is actually one of the more npopular indicators that you get started with especially. If you re new in trading..
The whole methodology here is that whenever nthe stock crosses above the moving average. Then you want to buy it whenever. The stock crosses below the moving naverage you want to sell out of your long. Position or go.
Short. Whatever. The case is obviously every indicator is going to work nin. Some scenario and other times.
It s not going to work this is again a very simple explanation or nexample of how an indicators. Gives clear buy and sell signals again this is some of the stuff that i prefer nis to use indicators. Not necessarily simple moving average just to be clear that give nindicators that are clear buy and sell signals note that the stock crosses below. It so that s nmy buy signal or my sell signal whatever.
The case is there s also a bunch of other different types nof indicators that you can add out there for example you can add another popular one nis stochastics. We can add let s say full stochastics to our nchart here with full stochastics what. You re looking nfor in this case. You don t see any moving average up there.
But what you re looking nfor in stochastics are these overbought and oversold zones. Basically you hear the terms or probably nwill. Hear the terms. If you trade long.
Enough. A stock is relatively oversold or relative noverbought basically. Whenever the stock gets up into none of these zones. Where it s overbought here or if it s oversold here that those nend up being the buy and sell points on the charts again.
It just correlates and gives very clear nsignals based on whatever you ve set up as to where you should buy or sell. There s a bunch of different variations in nhere. Too. I just want to go through some of these so nyou guys can see we ve also got things like bollinger bands.
These are really becoming more popular again very clear buy and sell signals with nbollinger bands. You re basically looking at buying and selling nthe breakout of every single move. So. When the stock breaks out of the lower boundary nand then.
If the stock ever breaks out of a higher boundary then. it didn t here. But nif did if the stock ran up and broke out of this higher boundary. That would be your nsell signal.
There s all types of different indicators. Nout. There again most of this technical universe here. Nis based on price movement volume acceleration.
Things like that some other ones that are out there are mfi nwhich is money flow. This is another one that s very popular or nbecoming. More popular you can see money flow has even clearer signals nin. Some of the things like bollinger bands or stochastics.
It s just one line and it basically then again nshows you an oversold range. Whenever. The stock indicator mfi gets here nthen you basically want to sell stock you would sell stock or go short. Here or nsell stock or go short here and you might buy at these lower regions which is buying nhere et cetera et cetera et cetera there s a bunch of different ways that you ncan do it there s literally thousands of different technical nindicators out there that you can use.
I think. The key is that if you re going to nfocus on anything just first focus on the indicators that give clear like mathematical nreasons. Why..
There is buy and sell i don t prefer to use anything that s really nsubjective in nature. Meaning. That it s a trend line that i m drawing on the chart how. Do you know that this this is a great nexample of this but how do you know that this is supposed to be the support and resistance nline versus is this the support and resistance nline is this support and resistance line is this the support and resistance line.
All of those thing could be valid support nand resistance lines. But they re all subjective to me. They don t really give us any clear indication nof. Why something might move higher or move lower.
Creating a buy or sell signal. Here s the deal. The real question becomes nwhich indicators. Really work which ones are actually reliable enough long nterm in the trade.
The question you might have is should i be ntrading using smas which. Is simple moving averages or stochastics nor macd or rsi or all the other different indicators that are out there which ones actually generate a profitable ntrade that out perform the market even if you did find xyz indicator that works nmeaning that it is reliable to trade. It has good signals that work more often than nit doesn t does it actually generate profits when it works do the profits overshadow the npotential losses. When it doesn t work.
I think that s a real key question that not nenough people actually ask in this industry. Here s the deal back in 2014. We purchased our own in house ndata. And developed an in house program to back test technical analysis.
Indicators. Once we had everything in place. We started nback testing. Hundreds of stock and indicator.
Variations covering the last 20 years of nmarket data. After 12 months of nonstop back testing and nanalysis. We packaged everything up that we discovered and put it into a single comprehensive nreport here s the deal. We are selling this report called signal on nour website.
It is one of the ways that we generate money nhere at option alpha. Even though we give away. 99 of the things that we do this is something that i think is game changing nand. I think it s something that everyone should have but not everyone needs to have or really nwe don t want to give it away for free because it s so freaking good.
We basically did 20 years of data 223 different nstocks 17. Different technical indicators. We re talking about things like macd stochastics nbollinger bands money flow index volume oscillators everything in there 17 different. Indicators 1476 different variations what i mean by this is we tested the granular ndifference between buying at a six day moving average versus buying at a seven day moving naverage and an eight day moving average.
What s better do i use a six a seven or an eight day moving naverage 1400 different variations between all of nthese different indicators. The ground work has been laid. We basically tested the living daylights out nof technical analysis to see what really works at the end of it we ended up tracking about n1734 million trades over the course of our year plus. Study with all these different nindicators and stocks basically.
We re looking for three questions nto be answered number one is technical analysis. More reliable nthan randomly picking a stock s direction honestly nobody s asked this question in nthis entire world if all this stuff is so good how good is nit is it more reliable than randomly. Picking na stock s direction. That s number one number two if its can you generate an excess nreturn above just holding.
The market. Now. The question always becomes is the market nmore efficient than any of these technical analysis indicators. We wanted to figure it out one if it was more reliable than randomly npicking a direction can you make generate money above the smp 500.
If you can what are the specific indicators. Nand settings that work best long term again it was the difference between finding nout does. The six day moving average as an indicator work better than the 10 or the 50..
Nor. The 100 does the 21 rsi work better than the 18 or nthe. 15. Or the 13 day rsi.
What are the settings that worked best long nterm now of course. I m not going to show you all nthe results in this video. Today. Because you do have to purchase a copy of the report to nsee what works there are four things i wanted to quickly nreveal to you that we learned from the report.
Which will help with you with technical analysis nregardless. If you purchase or not that s what i wanted to get across here in ntoday s this video. Because i think just knowing these four key aspects will dramatically nhelp your success rate again. Whether you choose to buy a report or nnot .
You do not have to we re not forcing you to buy it it s not required to be successful trading noptions. It s for the people who want to know what nindicators work. And what don t if you know these four things i think it nwill help you get a better understanding of the relationship between profitability. Maybe.
Nand technical analysis. The four key numbers that we re going to go. Nover. Here are the following one is that exactly 39 or about 5 of the n766 different long indicator variations that we back tested beat.
The smp 500. Benchmark nnet return this means that 95 of the technical analysis nindicators that we tested underperformed the market. This is incredibly important because what nthis really means is that 95 of the indicators that are out there are basically junk and ngarbage and don t really work your goal is obviously to back test by yourself buy the report from us if you want to do that nbut basically find the ones that do really work. If you can t find them you might even be nbetter of just not using any technical analysis at all that s just the reality.
The average win rate of all technical indicators ntested. Long and short was just above 45 . What this means is that as a group flipping na coin would have been more consistent for a strategy of buying and sell signals this gets back down to what i was talking nabout before you do not have to purchase. This report just with these two numbers you realize that nyou actually have a higher probability of success overall .
We re not talking specific nending here. We re talking overall you ve got a higher probability of success nif. You flip a stinking coin and buy or sell. The stock based on the heads or tails of that ncoin flip as a group everything that we tested so nmany different indicators.
So many different variations as a group they were very inconsistent with njust being able to pick direction now obviously some indicators were definitely nbetter some indicators were definitely worse as a group they were so so to less that nprofitable with a coin flip. 208. Test variations. Blew up the model portfolio nentirely.
This is about 27 of the variations that we ntested that means that they created losses of more nthan 100 after commissions and notably short term or day trading timelines. Under 30 days nwere not profitable. This one to me is the big one because we ncan can basically put a fork in the ability for somebody to consistently on a long term nbasis . We re talking 20 year basis here profitably predict where the market is going nto go on a day trading timeline now.
You can go again. You don t have to nbuy. This report. Now now you can go out figure out if it works nfor you or not try day trading come back after a year after you ve lost nmoney.
Tell us that we were right that it doesn t nwork if you ve already day traded. You know it ndoesn t work. But now we ve proved with numbers and statistics that it doesn t work under na 30. Day.
Timeline even. Really okay just a little hint here. Even 30 days..
Plus. Really doesn t work we ll get into that a little bit more deeper nin. The report. The reality is is that some of these indicators.
Nare actually so bad that almost a third of them actually blew up the portfolio that s cause for concern. Again. You don t have to buy the report to nknow this now you know you should probably stay away nfrom. Some of the indicators that might blow up your report or blow up your account the last thing is that transaction cost as nan overall percentage of gains losses accounted for approximately 7 .
Generally speaking transaction costs were nnot a major drag on overall profitability. What this really means for me is that there nis no link directly between people who trade more and necessarily are going to lose. Because nthey trade. Too much there was no direct link that we found between novertrading and profitability.
If you traded a lot you could still make na lot of money if you traded a little you could still make na lot of money this idea that sometimes you can overtrade nand trade. Too much i think is not true. I think you can reduce risk by trading smaller nmore. Frequent sizes.
Again we tested everything in our report nfrom a. 1. Allocation per trade to a 2 a. 5 .
A 25 allocation per trade. We tested everything to see what really worked nas far as allocation as well again. What we found is that the transaction ncost and the churning of the account really didn t have a drag on profitability. What mattered more so in transaction cost nbroker fees all that stuff was actually were you using the right indicators or not that s what was really key here s the point the right technical analysis.
Indicators can nhelp you make more profitable trades. The top five indicators. We found generated nwinning. Trades 82 of the time and outperformed the market by 2602 on average again that s after combing through 1734.
Million ntrades to see what actually works when it comes to options trading selling noptions based on high probability. Strategies with defined risk. Always outperformed. Even nthe best technical analysis.
Indicators. Once again. If i haven t said. It a million nfreaking times in this video.
If you want to buy a copy of signals. We would nbe more than glad to sell it to you i think it s an incredible piece of research nand. We ve gotten a ton of amazing feedback from it if you are going to be successful in this nbusiness. You don t need technical analysis to be successful it can help.
But it is not required again technical analysis can be a supporting nfactor in your decision to long or short stock directionally bu. It should never be the only nfactor hopefully you guys enjoyed this video. It probably was a little different than you nmight have expected heading into it and that s okay i want to know what your comments and your nfeedback. Are if you have questions about different indicators.
Nor about anything that we covered in the report. Please let me know if you love this video please share it online. ” ..
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