Implementation of Fibonacci Retracements and Exponential Moving Average (EMA) Trading Strategy in Indonesia Stock Exchange

Abstract

Based on KSEI statistic data on March 2021, IDX individual stock market investor is increasing 199% compared to 2018 becoming 4,848,954 number of investors. 56.9% population of the individual investor is having ages that less than 30 years. In the period where IDX was bullish in November 2020 - January 2021, there is a phenomenon where stocks influencers appeared in social media and impacted to the stock price movement after the announcement is done by the influencer. In contrary, during bearish and sideways condition, those influencers were gone and changed with bad news that went viral where many individual investors are lost their capital in IDX. They lose money since they are gambling in the stock market without any analysis and no establishment of trading plan. This research is aimed as a strategy to individual investors in IDX to implement trading strategy based on Fibonacci retracements and projections, EMA lines, trendlines, stochastic, and volume. Back testing is conducted in IDX SMC Liquid index constituents during January 2018 until December 2020 period. By implementing this trading strategy, return generated is 164% for 3 years trading time frame. Author also found that this trading strategy is effective in bullish trend condition especially for individual investors that have long position.

A New moving average approach to predict the direction of stock movements in algorithmic trading

“…The use of Fibonacci numbers in finance is not an entirely new issue. They are used in price reversals in changing trends, determining possible support/resistance levels after the horizontal market or predicting trend periods, fib retracement, trend-based Fibonacci fib time, trend-based fib extension, fib circles, fib spiral and fib channel [15].…”

A combination of machine learning based natural language processing with technical analysis for stock trading

“…Moreover, the update gate also controls the storage of previous state data, a combination of the input gate and forgets gate of LSTM architecture [34]. Therefore, The formulas of GRU as shown in (15) to (18).…”

“…-EMA focuses on the different moving average variables. The idea is that the historical price of the latest date is more important than the previous day [18]. Therefore, EMA emphasizes the current price more than the price from the previous day.…”