Hello and welcome to CantosCharts Masterclass. I'm Sandy Jadeja, Chief Market Strategist for CMS FX.

Well welcome back to another lesson in how to use technical analysis and chart patterns as a tool for your trading. As always, these are simply for information and educational purposes only.

We'll take a look again today at how to use a combination of indicators. Now we touched, in the previous lesson, how to use the moving average and the RSI and today we'll continue looking at the moving average and the RSI, but we're also going to add the parabolic SAR and the MACD covered in previous lessons.

So, take a look at this chart over here. This is the Dow Jones daily chart. Now of course there is quite a lot of information on this chart to look at and there are some traders who like to combine quite a few indicators rather than just looking at one or two. So here we will try to combine all of this and see what information we can derive from the charts.

The Dow Jones recently has had a very nice rally from the February low, but what could we have used to help us indicate that the market was indeed going to take a move towards the upside? Well first of all, after the market had completed its decline around the February period it eventually got back above its 20 period moving average, but also, these dots that you see are the parabolic SAR. Now this is called the Stop And Reverse indicator.

So once the Dow, on the daily chart, had broken above the red dot towards the upside, that indicated that there could be a reversal at hand and then of course we had the market move above its moving average. Also, at the same time, the RSI was in the oversold zone. So that's three indications that this market may be at an exhaustion point just in this area here.

Now also, the MACD had been declining, but also, it was below the zero line. So that was a lagging indicator. So out of the four indicators, the MACD was the slowest to react.

Now eventually, around the March period, the MACD had crossed. The signal line had crossed and of course it had gone above the zero line. By then the Dow had had a nice move towards the upside. It's now starting to trend nicely breaking above the recent high. Currently however, notice that the RSI is in the overbought zone. So that is suggesting that prices may be reaching an exhaustion point.

Also notice on the daily charts that we are quite close to the parabolic SAR, suggesting that if we see a sharp drop by around 120, 130 points, we may see a move towards the downside. Now currently, as I speak, the parabolic SAR is standing at 10,777, so around 150, 200 points sharp decline towards the downside. That will suggest that we may have a change in trend and of course the RSI would come a little bit off and maybe even the MACD might signal a crossover.

Now, on the weekly chart, different picture. The parabolic SAR is standing at 9,960. So that's quite a distance away, so we would need to see a serious decline for the longer degree trend to change. Also, there is a slight divergence on the RSI. In other words, the Dow on the weekly chart has taken out the recent high, but we haven't seen new highs in the RSI just yet. We did previously, but not at the current move.

The MACD however has crossed over towards the downside at the previous high, but it is still above the zero line. So that entirely is not bearish. It's just bearish on a shorter degree.

So on the longer degree charts we are still bullish except for the RSI divergence, but on the shorter term charts we might start to see a move towards the downside. So if we start to see a move towards the downside on the shorter term chart, we might be looking for buy signals rather than extreme sell signals. Of course if the Dow takes 9,960 out, that's a different story.

So what is needed to turn bearish longer term? Again, if we take a look at this chart here, I would like to see most importantly the Dow take the recent low out which is just below the 10,000 area, the RSI to of course move towards the downside but the parabolic SAR to be broken out as well and I would like to see the MACD turn bearish by taking the zero line out.

So the answers are really lower highs and lower lows, a parabolic reversal, the overbought or the divergence to take place in the RSI against price and importantly for the MACD, I want to see it below the zero line.

Now this is really important to understand. You first need to look at if you're a longer term trader or a short-term trader because that's where this is going to become useful to you. If you're a longer term trader then you really will need patient and just stand aside for all of these to take place. If you're a short-term trader, then the daily chart is going to be much more useful for you because you can still extract probably between 100 to 300 points on the Dow movement because the average daily range is going to be around 60 to 65 points. So on a shorter term scale we could look for the daily chart to indicate a move towards the downside, but we would ideally want to take away this low here below 10,000 and the SAR to change. That would be a very, very, very strong signal. Combine all of these together, then of course we could start seeing moves in the summer towards the downside.

So use multiple timeframes and it's important to wait patiently for the market to reveal its hand rather than just prematurely jumping on board. The higher degree timeframe is important for the overall trend whilst the lower timeframes can be used for entries and exits. I always try to say to people that it's the weekly and the monthly charts which are giving us the overall trend and the daily charts are really used for the timing for entries and exits. If you combine these two elements together you can actually get some very, very, very powerful moves in the financial markets.

Now in the next lesson we're going to take a look at combining more chart patterns as well as the technical indicators to give us the current situation in the financial markets. In the meantime, I hope you have a great trading week. This is Sandy Jadeja for CantosCharts Masterclass.