In the below chart, you’ll see that the JSE Top 40 has broken above the wedge (triangle) pattern.
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To find the target of this triangle pattern, you’ll just look for the highest point of the triangle.
In this case, the highest point is drawn with a horizontal green line at 55,000.
That’s where my next JSE Top 40 target will be, all thanks to a triangle.
And we know the JSE Top 40 is made up of the Top 40 shares by market cap. This means, there are a number of trades lining up as we speak.
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I’d suggest you start out with R10,000 to trade so you’ll have enough money to play around with local CFDs.
This way you can get the feel of what it’s like to trade with real money and you’ll have enough to cover costs
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"You spoke about the Average True Range indicator and how you can use it to help set up a trade. My question is more of a technical one. What is the difference between the “range” and the “true range” of a share?"
During the day you’ll see the stocks trading at different prices.
Everyday there is a low price where the stock trades the lowest of the day.
And a high price where the stock trades the highest for the day.
The ‘range’ of a stock is simply calculating the difference between the high and the low price of the stock for that day.
Let’s say Anglo American share price moved between a low price of R280 and a high of R290. We say that Anglo moved in a R10 range that day.
Here’s an example using one day’s range of Anglo…
You now know that the range is between the high and the low price of the stock per day. However, we know that a stock can open higher or lower than where it closed.
This is where the true range makes up for these gaps (levels that the market did not trade at) in the market.
We need to take into account these gaps to calculate the true range.
To calculate the true range, you’ll use the following:
High price – low price (Which we’ve covered)
Current high price – previous closing price (PC)
Current low price – previous closing price (PC)
Here are what the price bars will look like.
The True Range will simply find the highest value of the three options of the day, to make up for the gaps.
Now in this week’s article, we used a 14-Day Average True Range.
The indicator will simply add the highest value of the three points, over the past 14 days and divide it by 14 days to get the Average True Range.
Luckily you won’t have to do any of these calculations, as you have a charting platform to do them all for you.
Always remember, “Wisdom yields Wealth”
Managing editor, Red Hot Storm Trader