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TECHNICAL ANALYSIS


Some assets, like short-term investment-grade/sovereign bonds and diversified stock indexes, rarely exhibit enough volatility to trigger signals when using the money flow index and Keltner channels on the settings listed above.


One option is to simply relax the settings to trigger more signals. For example, one could use a smaller period on the MFI (e.g., 7-day, 10-day) to generate more signals or use a 25-75 band instead of 20- 80 band for oversold/overbought


FX


readings. Moreover, on the Keltner channels, one could also use a shorter period or lower the average true range multiple. The issue with doing this, however, is that if the criteria is relaxed too heavily, then the signals may become less statistically significant in terms of finding quality reversal points in the market.


With a volatile stock like KMI, one should be able to generate potential trade setups based on the stipulated criteria.


Trade #1


The first example is a long trade where we see both a move below 20


on Fig. 2 - Trade #1 the money flow index,


denoting “oversold” and a touch of the bottom band of the Keltner channels.


Here this trade ended up nailing the bottom of the ongoing down move. Trade entry is identified by the upward pointing green arrow. The touch of the middle band of the Keltner channels represents the trade’s exit, which is defined by the white arrow. This trade made about a 4.2% profit.


Trade #2 Fig. 3 - Trade #2


This is a similar setup to the first where we are betting on a reversal in the trend. Price comes down to a point where it triggers an “oversold” reading in the MFI and


FX TRADER MAGAZINE October - December 2018 55


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