Hello and welcome to CantosCharts Masterclass. I'm Sandy Jadeja, Chief Technical Analyst for City Index. Welcome back to another lesson in technical analysis and charting. As always, these are only for information and educational purposes only.

Well today I want to talk about how to catch a big wave in the markets because that's something we're all looking to do - we want to catch the really big move in the market.

So how do we determine when a big move is about to potentially occur? Well the main thing is that markets occasionally create these large swings. They don't always happen and the key thing is that we're looking for the initial signals. The main focus is what are the signs there that are pointing to a potentially large move that's about to take place and then of course which technical indicators to use and how do we use entries and exits whilst we're in that move.

So have a look at this chart over here. That's an ideal chart. That's what we would like to capture. As I said, they don't always occur. Markets tend to move up, down and of course sideways, so in those three phases we want to catch a big move on the upside and of course a big move on the downside. But we will focus on this for this lesson and this will be a two part lesson.

Now, the first thing that I've shown you over here is before the big move occurred there were some signs which were indicating that potentially the trend may change. Prior to that we had these lower highs, so the trend in that instance was towards the downside and then we started breaking above the recent high.

Now that would have been your first indication that a break towards the upside could have potentially pointed out that maybe the trend has changed and then, of course, we saw another break towards the upside and then the big move started.

So ideally, you want to start looking for a break of the recent high and then start getting a series of higher highs to indicate that the trend has changed.

Now in this example here we're looking at the same chart but I'm going to start adding some indicators here to point out which ones are good, which ones are probably better and straight away all I have done is added a 20 day moving average and that's it. There's nothing fancy about this and the first thing we notice is that the first time that the market closes above the moving average, that's a potential buy signal. If it closes below the moving average, then you want to exit.

So the first trade was actually a very, very, very small loss. The second trade, immediately after the third day, the market yet again closed above the moving average and then from that point just propelled higher and that was it. So in this example here, this particular trade had managed to gain 847bps. That's not bad.

Now in this example the same market, all I've done is overlaid two moving averages and we have a five day and a 20 day, so what we're doing is looking for a crossover. So here, once the market had crossed over, we saw a nice trend towards the upside.

Now in this example 791bps, again, it's a very good trade. Not as good as using the single moving average, but some people like to use dual moving averages and you have to understand that these are lagging indicators so you're not going to get a perfect signal. But yet again, it was a fairly good move here.

Now on this one, I've often talked about the parabolic SAR. I do like the parabolics because they are, in most cases, a fairly good indication of a trend change. So once the market was moving towards the downside and we had a break above the parabolic SAR, that indicated that there was a potential change in trend.

Now, in this example, what actually happened was the market reversed back towards the downside, so that gave us a losing trade, and then again it reversed back towards the upside and midway we actually had another signal which pointed to the downside.

So what you can see here is with the parabolic there has been several entries and exits and the parabolics tend to hug the markets quite closely and of course you can adjust the settings to your own liking. But the point I'm trying to really make here is that we've used three examples and you've had different results here.

In this example, you would have had less than 700bps. You would have around, I think I worked it out to about 520bps on this one. So a nice indicator, but you would have been stopped out a couple of times and you would have caught at least a major part of that move there.

Now in this example what I've done is used the MACD and this is the histogram. A lot of people like to use the histogram and the way they trade, of course we've been through this example in previous lessons, with the histogram, what you're waiting for is the histogram to get back above the zero line. That's the signal line. So in this particular move over here you can see that we've missed the beginning part of the move and we've got into the middle of the section and again, we had a decent move. We didn't actually get stopped out at all on this one here and we gained 365bps, so again, not so bad.

Now we're using the MACD crossover so please ignore the histogram on the right-hand side, but we're actually using the crossover and we catch the move earlier on. So once again, we didn't actually get stopped out. It was a straightforward move and we captured 514bps on this.

Now with the crossovers or the histogram you can trade both ways. If it crosses to the downside you can of course take a short signal and of course, if it is crossing to the upside, you take the long signal. On the histogram, if it's crossing below the zero line you would initiate the short position or even exit your position. So again, same market, different methods that we've used here.

So the key point to understand is you have to try to find out which method is going to be suitable for you. There are various methods for technical analysis to enter and exit. There is no perfect method. It just doesn't exist. Everyone is trying to get the ultimate move, or the ultimate number of points out of that market and you can spend a lifetime trying to refine the indicator settings. In my world, it's a futile exercise, so just try and capture at least a significant part of the trend.

Then of course technical indicators are just really a tool. They're not the Holy Grail. You can use a combination of indicators as we've shown you in previous examples, or, you can use just that one standalone indicator.

In the next lesson we're going to continue this idea and to see if we can try to improve the method, or try to improve the way of looking at the market.

In the meantime, have a great trading week. This is Sandy Jadeja.