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

Welcome to another lesson in our journey on technical analysis. As always, these are simply for information and educational purposes only.

Well today we're going to continue looking at how to combine indicators. Essentially what we're doing is looking right now at what we've learnt so far and putting it into practice.

Today we're going to take a look at the moving average channels which is the 10 period that I'm using here and the MACD indicator, the 9 period.

Now in this chart here we're looking at the FTSE 100 daily and straight away you'll notice something slightly different. Instead of using the traditional moving average, what we now have is the moving average band.

Essentially we have two bands here. There is the upper band in blue and the lower band in red and what we're looking for is for the market to break above this band and essentially to close above the band. That's the key really. If it closes below the band, that would provide us with a negative or bearish signal and if it closes above, that's a bullish signal and at the bottom of the chart we have the MACD which we've looked at in the previous lessons.

So what are we looking at on this particular chart? You will notice that I've got red and blue arrows on the actual market. Now, starting from the left hand side, we have a blue arrow. That's when the FTSE 100 closed above the upper channel. That would indicate there's a buy signal and then we have a red arrow and that would indicate that the market has closed below the moving average band and that would indicate either to exit the position or even to initiate a short position.

So we have a series of buy and sell signals on the actual market itself. Now on the lower side where we've seen one, two, three, four and five, these correspond with the buy and sell signals or the buy and exit signals.

What I would like to draw your attention to is when we have the market close above the moving average band notice also the position of the MACD. Now at point one we know that the MACD has crossed giving us a bullish signal. But more importantly, it's above the middle line, the blue line, which is the zero line, so that's bullish and then, when we get to point two on the MACD, that's when the FTSE 100 Index would tell us to exit the position or even go short and again, the MACD has crossed below.

But what's important here is the MACD is not below the zero line, so that's not bearish, so it would ideally tell us to just exit the position. So right up until point four, the MACD is above the zero line so really we have bullish signals rather than bearish signals. But at point five, the MACD had been below the zero line.

So I want to take you to another level and that's essentially the weekly chart. If you notice here, again we have buy and sell signals on the longer term timeframe. So at point one the MACD has crossed over but it's not above the zero line. But on the moving average channels we did have the FTSE 100 close above. Sometimes you will get conflicts between two indicators and as a trader what you really want is indicators whichever ones you're using to be on your side, or for them to correspond with each other.

We can argue that well actually the moving average channel had given us signals before the MACD and that's true because all indicators will be lagging and the price will move first. So it's really up to you to decide whether you prefer to use the moving average channel or the MACD as an indicator. But ideally you would want to use the two as a combination.

So what we're really looking for is the weekly for the trend and the daily for entries and exits. So on this chart here I'd like to draw your attention to point three on the MACD and that's really where we saw from July 2009 to February 2010 where we had a bullish period with a positive MA and MACD. In other words, the MACD, during that time period, had been above the zero line. It had crossed over to give a buy signal and at the same time, the FTSE 100 Index was above the blue moving average line, so that's clearly a bullish trend.

So from July 2009 to February 2010 we had a nice steady uptrend and just recently we had seen a sell signal which is where the FTSE had closed below the moving average channel and then it also quite quickly reverted to get back into a buy zone. So during four and five, just over here, a little bit tricky, quite mixed signals there.

So if we come back again to the daily chart, what we would really say to ourselves is whilst the July period to the February period we had a bullish mode, although we had several signals on the FTSE 100 Index daily chart, we really should have ignored all the sell signals. We would only have taken the buy signals and that will have generated much better results in your trading portfolio because if you had taken all the sell signals as well you would have had quite a few losses there.

So essentially, we want to use the higher degree timeframe, which is important for the overall trend, whilst the lower degree timeframe can be used for entries and exits and I will reiterate that in every lesson that we should ideally use a minimum of two timeframes. So if you're a longer term trader, a weekly/daily. If you're a short-term trader the daily and maybe the hourly or even the four hourly charts and so forth.

So next lesson we will talk about combining indicators but by just using a variation of this. In the meantime, have a great trading week. I'm Sandy Jadeja for CantosCharts Masterclass.