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 Search Indicators by alphabetical order. |
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Advance/Decline Line (A/D Line)
The Advance/Decline Line (A/D Line) is very often used as a gauge of the market breadth. It is a joint sum of the Advancing-Declining Issues indicator. The Advance/Decline Line (A/D Line) is an extremely efficient measure of the market's strength.
How to calculate the A/D Line correctly? It's a running total of advancing stocks minus decreasing stocks. A/D Line has been created for gauging the market's strength. It says that as long as there are more advancing issues than decreasing issues, the market is in strong position. As well as the stock index is a compound of stock prices the A/D Line is a compound of stock fluctuations. That's why A/D Line is declining every day much quicker compared to the weekly trend and the indices based on prices. There is a tendency of having the same number of so-called "up days" and "down days". And the foregoing trend is a result of the average stock. However at last the profit starts to increase more quickly than the losses.
There's an opinion that the A/D Line depicts the strength of the market more efficiently than the more often used Dow Jones Industrial Average (DJIA) or the S&P 500 Index. If one examines thoroughly how the A/D Line is changing he's aware if the market is in a rising or falling trend, if the trend is still stable, or how long the ongoing trend has been on the market. Sometimes the A/D Line also works as a gauge of general strength of the market. The A/D Line goes up if advancing stocks outnumber declining ones. The A/D Line moves down if there are more declining stocks than advancing ones. Sometimes the A/D Line is also used for highlighting a show between itself the DJIA or the same index.
In many cases it's possible to forecast the bull market's end when the A/D Line starts to round over even when the DJIA is trying to reach new peaks. Usually when a discrepancy between the DJIA and the A/D Line is growing, it means that the DJIA has changed its direction and moved towards the A/D Line.
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It is another technical indicator depicting the ratio of advancing issues to decreasing issues. The ability of theAdvance/Decline Ratio (A/D Ratio) to serve as an overbought/oversold indicator shows its prominent value. When the indicator moves towards the upper peak it means that the market is approaching to an overbought situation and suggests that a correction may soon happen. When the indicator is moving towards its lower limits it's the signal of oversold situation and shows that it's worth taking a technical rally. Smoothing the ratio with a changing average often destroy everyday fluctuations of the Advance/Decline Ratio.
It is used to show market breadth. While it's similar to the Advancing-Declining Issues, the A/D Ratio stays at a constant level irrespective of the number of issues on the New York Stock Exchange.
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The Absolute Breadth Index counts the difference between the advancing and declining issues and gives up the actual direction in which prices are moving. This index was discovered by Norman G. Fosback. It clearly shows the unsteadiness and constant changes on the NYSE - New York Stock Exchange.
If this index demonstrates high values it means market activity and possible changes. If this index demonstrates low value indicates it means that no changes are taking place.
Fosback also found out that high values, as a rule, cause higher prices 3-12 months afterwards. The most widely used way of using the Absolute Breadth Index is to divide the weekly ABI by the whole issues traded on the market. If after 10 weeks moving average is calculated and readings are less than 15% they are called "bearish". Readings higher than 40% are called "bullish".
Calculation of Absolute Breadth Index (ABI):
ABI = |Advancing Issues - Declining issues|
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It's an oscillator based on the swing index (SI). A currency trading price purchasing signal occurs when the daily high transcends the previous SI essential peak, and a currency trading price selling signal is generated when the daily low point becomes lower than the essential SI low. It stands very close to actual prices with the Accumulation Swing indicator which tries to show the real Forex trading market. Therefore one can just use a usual the Index's support/resistance analysis. Common analysis comprises work on looking for discrepancies, breakouts and new peaks and falls.
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The A/D indicator is the accumulation of the distinction between all upward movements (accumulation) in the period, when the price has raised by the closing point and downward movements (distribution) in the period, when the price has gone down by the closing point. The Accumulation/ Distribution indicator helps to determine if the Forex market is controlled by buyers (accumulation) or by sellers (distribution). It was worked out by Larry Williams. This indicator gives seldom signals forming discrepancy with the price at the critical tendencies' breaks.
Distinction between the highest price (high) and the close price (close) is subtracted from a distinction between the close price (close) and the lowest price (low). The value which is got as a result is multiplied by volume and divided on a difference of the highest and lowest prices. The indicator is equal to the sum of expression for all intervals of supervision. The A/D indicator recommends purchasing when prices go down to a new low, and sell when the price reaches a new peak.
The A/D indicator is defined by fluctuations of the price and volume. The volume serves as a weight factor at the price change. The more factor (volume), the bigger is the contribution of the price change for the defined time period in value of the indicator.
This indicator gives rather infrequent signals forming divergence with the price at the critical breaks of tendencies.
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Chaikin's indicator of accumulation/distribution worked out by M. Chaikin and D. Lambert is another version of the On Balance Volume - (OBV). There are not many parameters defining the volume accumulation-distribution. Therefore it's not that important to test the effectiveness of each indicator's value. This indicator's mechanism of work is based on two underwritten notions.
Firstly, at stable trend, volumes of tenders, as a rule, are higher than an average level. This concept suggests that at bull trend VA will go up too, and its values will be positive, and at descending bear trend VA will go down and receive negative values.
Secondly, as a rule, the closing prices are quite near their extreme values. That's why at bull trend, the closing is nearer to a ceiling price, and at bear trend the closing price is nearer to a floor price.
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Advance/Decline Line (Breadth) - A/D Line (Breadth) is the oldest one in the sphere of technical analysis. The Advance/Decline Line - Breadth - indicates the number of advancing issues divided by the sum number of declining and advancing issues. The main precondition of volume indicators, which include the Accumulation (Distribution) Line, is that volume is prior to price. Volume depicts the number of shares traded in a definite stock. That's why it is a direct reflection of the capitals moving inside and outside the stock. There will be period of increased volume preceding the move in many cases before a stock advances.
The market is supposed to be strong or "having good breadth" when advancing issues overcome declining issues. If the line breaks out to the upside one can predict the market increase during upcoming months. And new index peaks have tended to
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Declining-Advancing-Issues is a market momentum indicator used to demonstrate the distinction between declining issues and advancing issues on the Exchanges such as NYSE and NASDAQ. This information is used every day to define the market situation.
This is the main formula for many market breadth indicators, including the Absolute Breadth Index, Breadth Thrust, Advance/Decline Line, Advance/Decline Ratio, Summation Index and McClellan Oscillator. The calculation for the Advancing-Declining Issues is rather easy - Advancing Issues - Declining Issues. Indicators working with declining and advancing issues in the calculations are called market breadth indicators.
This indicator is rather useful for defining daily market strength. Strong "upward days" sometimes have readings over +1,000. Weak "downward days" sometimes have readings below -1,000.
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Alligator indicator consists of 3 lines. They are Moving Averages with various parameters. Here they are:
The First line, or the chap of alligator, is a line of balance to the considerable period of time. It's used for the chart constructing - 13 period smoothed shifting average, moved on 8 bars to the future. The Green line, or the lips of alligator, is the line of balance for the considerable period of time, which is one more step less - 5 period smoothed shifting average, moved on 3 bars to the future. The Red line, or the teeth of alligator, is the line of balance for the considerable period of time, which is one step less - 8 period smoothed shifting average, moved on 5 bars to the future.
How to interpret the lines? When all of them are jolloped, it means that the "Alligator" is sleeping, and the more it sleeps the more hungry it gets. Of course, when it wakes up after long sleep, it's very hungry and starts "hunting for food", which is price, till it is glutted. As soon as it happens, it looses interest to the food, which is price, and then the balance lines meet at the same point. It's when you should fix your profit. It's time to close all positions and wait till Alligator awakes up next time.
This indicator's aims are the following:
1. To become an easy for usage indicator to trade only in the current trade
2. To develop a reliable way of saving the money during the moving of the market bounded with the price channel
3. To represent united way for monitoring of the moving of the market
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Alpha indicator represents the distinction between a mutual fund's actual performance and the expected performance based on the risk level taken by the fund's manager. Alpha indicator measures the residual risk which an investor afterwards uses as a result of investing in a fund rather than in a market index. The fund is considered to have an Alpha of zero if a fund produced the expected return for the level of supposed risk.
Alpha = [ (sum of y) - {b *
(sum of x)} / n ]:
n - number of observations
b - Beta of the fund
x - rate of return for the benchmark index (often, but not always, the S&P
500)
y - rate of return for the fund
A negative Alpha demonstrates that the manager didn't succeed in rewarding investors sufficiently for the risks they take. A positive Alpha demonstrates a return bigger than it was supposed for the taken level of risk. On the whole, the Alpha-Beta Trend Channel study uses the standard deviation of price variation to build 2 trend lines. One is higher and one is lower than the changing average price field. This creates a channel, or a band, where the biggest part of price field values is happening.
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Jensen Alpha indicator is investment's average return exceeding the risk free rate; Beta multiplied by the benchmark's average return exceeding the risk free rate. Positive Jensen Alpha shows successful performance, negative Alpha means bad performances. The period of an Alpha should be for long-term review which is three years and more.
Jensen Alpha indicator is called after its developer Michael Jensen.
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Dr. Alan Andrews developed this technique of drawing a Pitchfork based upon a Median Line. Dr. Andrews' rules state that the market will do one of two things as it approaches the Median Line:
1. The market will reverse at the Median Line.
2. The market will trade through the Median Line and head for the Upper Parallel Line and then reverse.
The Pitchfork is often used to find the top of Wave 3. Wave 3 will usually end on either the Middle Line or the Upper/Lower Parallel Line.
Andrew’s pitchforks are built on the basis of three extreme points. On the basis of three set points the program builds the image of three beams. The first beam built with the beginning of the first point and passes through a midpoint of the piece, connecting the second and third points. This line is called as "handle of pitchfork".
Further from the second and third points two beams are built, parallel to the first beam. These lines are called as"prongs of pitchfork". The interpretation of Andrew's pitchfork is based on standard rules of interpretation of lines of support and resistance.
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The developer of Arms Index is Richard Arms who created it in 1967. For years this index got many various names. They called it the Short-term Trading Index after the first article by Barron in 1967. It's also called TRIN which is an acronym for TRading INdex.
The Arms Index demonstrates the dependence of the volume connected with stocks increasing or decreasing in price, the so-called advancing/declining volume, and the stocks increasing or decreasing in price, the so-called advancing/declining issues.
The calculation is: Arms index = (Advance/Decline Ratio)/(Upside/Downside Ratio)
A value over 1.0 means more volume in declining issues and is negative. A value below 1.0 demonstrates more volume in rising stocks and is positive. The Arms Index is an opposite indicator trending in the opposite market direction. You can use it for day's trading by following its direction and for detecting signals of short-term market extreme. The Arms says that a ten-day average of the Arms Index above 1.20 is supposed to be oversold, and a ten-day Arms value lower than 0.70 is supposed to be overbought, though these figures can change depending on the general market trend.
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The Aroon is an indicator system which helps to define if the trading instrument is trending or not and if the trend is strong.Aroon Indicator and Oscillator were developed by Tushar Chande in 1995. "Aroon" is translated from Sanskrit as "Dawn's Early Light" and Chande named the indicator like that as it's supposed to reflect the start of a new trend. The two lines, "Aroon up" and "Aroon down" form The Aroon indicator. The Aroon Oscillator is one line that is a distinction between "Aroon up" and "Aroon down". These three lines take the same parameter - the number of time periods - for the calculation. Both "Aroon up" and "Aroon down" fluctuate between 0 and +100, that's why the Aroon Oscillator can make up from -100 to +1 00, while with zero is used as the crossover line.
To calculate "Aroon up" for a certain period of time you should define how much time in percents passed between the beginning of the time period and the point when there was the highest peak during that time period. For example, "Aroon up" will be 100 if the instrument is setting new highs for the time period. And "Aroon up" will be zero when the instrument has moved lower every day during the time period.
To calculate "Aroon down" you should do the opposite action and to search new falls and not new peaks. Chande says that when "Aroon up" and "Aroon down" are moving lower in close proximity, it demonstrates an integration phase has started and strong trend isn't obvious. If "Aroon up" falls under 50, it means that the ongoing trend has lost its upwards momentum. In the same way when "Aroon down" falls under 50, the ongoing downtrend has lost its momentum. Values higher than 70 show a strong trend in the same direction as the "Aroon up or down" is starting. Values less than 30 mean that a strong trend in the contrary direction is starting.
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The Average Directional Index, or ADX, was developed by J. Welles Wilder to determine trend forces, whether the trend will grow on or will gradually lose its positions. This indicator lets analyze the market tendencies and make trading decisions in the Forex market.
In fact, ADX relates to the class of oscillators, which changes positions in a range from 0 up to 100. Though the indicator's fluctuations are in a range from 0 and up to 100, it seldom goes over a point of 60. If the value is lower than 20 demonstrates a weak trend, if the value is over 40 shows a strong trend. Position above 40 indicates both strong descending, and a strong ascending trend.
1 variant - calculation:
Calculation of positive and negative directed movement (Directional Movement or
DM) - +DMj and -DMj
If Highj (a maximum of
a current bar)> Highj-1 (a maximum of the previous bar),
That +DMj = Highj - Highj-1, differently +DMj = 0
If Lowj (a minimum of
a current bar) < Lowj-1 (a
minimum of the previous bar),
That -DMj = Lowj-1 - Lowj, differently -DMj = 0
If +DMj> -DMj,
That -DMj = 0
If -DMj> +DMj,
That +DMj =0
If +DMj = -DMj,
That +DMj =0, -DMj =0
Determination of the true
range - TRj
TR = maximal module of three values
|High - Low |, |High - Closej-1 |,
|Low - Closej-1 |.
Closej-1 - the close
price of the previous period.
Note: In most cases module |High - Low| will be maximal on forex in absence of price breaks.
Determination of the indicator of a positive direction and the indicator of a negative direction - +DIj and -DIj(Directional Index). +DIj = Exponential Moving Averagej (+SDI, N) -DIj = Exponential Moving Averagej (-SDI, N) Where, if TRjnot =0, That +SDIj = +DMj / TRj; -SDIj =-DMj / TRj If TRj = 0, That +SDIj = 0, -SDIj = 0,
Determination of the
average directional index- ADXj
ADXj = Exponential
Moving Averagej (DX,
N) Where DXj it is calculated under the formula
ADX looks as follows.
Sometimes ADX helps to determine potential market changes. Once the indicator grows over 20 points from below upwards, maybe, it's the sign of the trend's change and its further development. When the indicator shows value less than 40, falling from higher level, it means that the trend has lost its positions.
ADX descends from two other indicators which were also developed by Wilder. The first one is called Positive Directional Indicator, or just "+DI", the second one is -Negative Directional Indicator, or "-DI". On the chosen time interval +DI - shows force of upwards movements, and -DI on the contrary shows force of downwards movements for the certain period. ADX indicates the trend's force and coalesces +DI and -DI smoothing data with changing average.
Usually buy and sell signals act on crossings +DI/-DI as following: a sale signal occurs, when -DI crosses +DI from top, and the buy signal occurs, when +DI crosses -DI from below.
It's crucial for the trader it to notice a trend at an early stage of development to gain maximum benefit from his deals. And ADX helps him in that. For that purpose it's quite important to watch currency pairs where ADX crosses 20 from below upwards. Correspondingly decreasing ADX less than 40 points indicates that the ongoing trend is weakened and the trading range starts. So ADX demonstrates presence or absence of a trend, and for determining a direction of an input and input points you should better use other kinds of indicators.
The input signal submitted by crossing of +DI and -DI in many cases occurs false if the currency pair remains in a trading range. Here is an example of ADX calculation:
ADX is a DX, smoothed by the exponential moving average for "the n periods":
ADX = MA (DX, n, E)
DX is a distinction between +DI and -DI; and it's calculated according to this fact. It provides the value with truly directed movement. The sum of -DI and +DI gives the value of total amount of directed movement during this period.
Here's an example of calculating DX for "n periods":
DX (n) = 100% * (PDI (n) - MDI (n)) / (PDI(n) + MDI(n)).
The aforesaid index determines in percents a part of the directed movement for "n the periods" in all fluctuations for these "n the periods". It lets define the trend's force of on a scale from 0 up to 100, independently from the fact if the trend downwards or upwards is directed. The size of the value depends on the strength of the trend.
Here's an example of calculating MDI and PDI:
PDI = MA (PDM, n) / MA (TR, n);
MDI = MA (MDM, n) / MA (TR, n).
TR = max (abs (High - Low), abs(High - Closei-1), abs(Low - Closei-1)).
TR - True Range, positive number.
2 variant - calculation:
Other variant of calculation of ADX:
ADX - is a DX, smoothed by the exponential moving average for the n periods:
ADX = MA(DX, n, E)
DX is calculated as a
difference between +DI and -DI and it gives the value of truly directed
movement. The sum of +DI and-DI gives the value of total amount of directed
movement within period. DX for n periods is calculated by the following formula:
DX(n) = 100% * (PDI(n) - MDI(n)) / (PDI(n) + MDI(n)).
The given index defines in
percentage a part of the directed movement for n the periods in all movement
for these n the periods. It allows expressing force of a trend on a scale
numbered from 0 up to 100, without dependence from those, the trend downwards
or upwards is directed. The value is as big as the trend is strong.
Where PDI and MDI are calculated by the following formulas:
PDI = MA(PDM,n) / MA(TR,n),
MDI = MA(MDM,n) / MA(TR,n).
TR = max(abs(High - Low), abs(High - Closei-1), abs(Low - Closei-1)).
TR – True Range, positive number.
In the falling market, -DI grows, and +DI goes down, and the market moving upwards +DI rises, and-DI goes down. If the trend is strong and quick, the corresponding movement DI will be as strong and quick. If +DI and-DI are set against each other, in the market there was a balance and there is a movement sideways. The market tendency changes at crossing of DI lines; if +DI has fallen below -DI, it means sellers became more active and the market starts moving downwards, if +DI crosses -DI upwards, in the market there is a bull situation with the majority of buyers. So crossing of lines DI is a sign to sell or buy.
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The Average Directional Movement Index Rating -ADXR - uses the ADX bar value and calculates the average sum of it and the ADX value of a recent, trailing bar. As a result the ADX values smooth. As with the ADX, a rising ADXR can indicate a strong basic trend. A falling ADXR in its turn can suggest a weakening trend subject to a reversal. Often ADXR can also indicate non-trending markets or the worsening of an current trend. Still the ADXR is not a directional indicator even though Forex market direction is significant in its calculation,.
The ADXR is different from ADX in that it doesn't so much depend on short, quick reversals as it results in a formula which is smoother. It's supposed make up the big variety of excessive tops and bottoms and is mostly useful when used together with trend-following strategies. People who rely on strategies which are based on the notion that inconstancy is a sign of movement may not realize that movement doesn't always indicate inconstancy. ADXR gives information belonging to the trend strength. It helps one to minimize the risk of trading in unsteady markets fluctuating between non-trending and trending.
ADXR measures the strength of a prevailing trend and defines if there is direction in a market. As a rule a reading above 25 is thought to be directional (it's plotted from zero and over). ADX defines the market tendencies and indicates if it changes quickly enough to reach it. ADX helps to get profit staying in the center of significant trends.
This indicator encourages looking for tendency force. If ADX goes up, it means that the market tendency is getting stronger. Then you should stop the bargains only in the direction of the tendency. If ADX goes down, the tendency is rather doubtful. In this case signs submitted by such oscillators as RSI and Momentum become quite significant.
The directional analysis usually follows movements in people's mood - both optimistic and pessimistic, measuring the possibility of the bulls and bears to move the prices under the boundaries of a price range of the preceding day. If the today's lowest price is lower than the yesterday's smallest one, the market is likely to go to pessimism. And vice versa, if the today's best price is higher than yesterday's one, the market can get more optimistic.
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The Average True Range is an indicator of volatility. It was developed by J. Welles Wilder in 1978. As well as the many other indicators, first it was created for the commodity markets, which are more unsteady than shares, and for the prices at the end of day. Nowadays it's widely used in Forex market, on other periods too.
First Wilder defines the True range, or TR, determined as maximal of the following 3 values: absolute value of a distinction between ongoing maximum and the previous close price; absolute value of a distinction between ongoing minimum and the previous close price; distinction between an ongoing maximum and an ongoing minimum. If the distinction between a maximum and a minimum is rather little, most likely other two aforesaid methods will be used for TR calculation. If the range changes inside of the period, a distinction between a maximum and a minimum, is rather big, most probably TR will calculate from it.
ATR = Moving Average (TRj, n), Where TRj = maximal modules from three values |High - Low |, |High - Closej-1 |, |Low - Closej-1 |.
As a rule ATR with 14 periods is used. It's calculated both on a one-day basis, and on day-time or week and even monthly basis. Extreme values of the indicator often define reversal points or the start of a new fluctuation.
Average True Range can't predict a duration or direction of changes, as well as other volatility indicators. It specifies only an activity level. The indicator's low level points out quiet trade in a little range, and high values point out intensive trade in a wide range. The long period of low ATR points out integration which, most probably, will result in fast continuation of changes or a turn.
High values of ATR usually are the result of quick fluctuations and seldom stay like this for the long period. As ATR indicates absolute volatility value currency pairs on Forex with the low prices will have with other things being equal lower ATR and on the opposite. The main notion of this indicator says "the smaller is the indicator's value the more poor a trend direction is; the higher the indicator's value is, the higher possibility of a turn of a trend is".
During a long period of ATR can be late, specifying not ongoing but previous inconstancy.
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Beta Coefficient
This indicator is the measure of the security's systematic risk. Beta Coefficient demonstrates the relative inconstancy of a security, or portfolio, compared to the market situation. The market is determined of having a beta of 1.0. as the starting point of this measurement.
A Beta below 1.0 demonstrates that a security is less unsteady than the market. Beta value over 1.0 means that a security is more unsteady than the market. When the Beta is 1.0, the, they say that the security's price is "moving along with the market".
The distinction between Beta and Beta2 is that Beta2 uses the Moving Average of the Rate of Change in its calculations instead of using the Simple Rate of Change. With either form of Beta, securities with a value higher than 1.0 will be more inconstant than the market. A Beta less than 1.0 is said to be less volatile than the market.
On the whole, the Alpha-Beta Trend Channel study uses the standard deviation of price variation for building 2 trend lines, one over and one under the moving average of a price field. This develops a band (channel) in which the greater part of price field values will happen.
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Indicator of Bollinger borders consists of two lines. They are placed on the equal distance to definite amount of usual discrepancies. While the value of standard deflection depends on the price unsteadiness, the lines automatically control their width. The width increases if the market is more volatile and decreases when the market is not so unsteady.
Here are the features of Bollinger's lines:
- The fluctuations of the prices which begin from one of the line's borders, as a rule, reach the other border. The aforesaid feature can be helpful for forecasting price's orienting points;
- Uncontrolled changing of prices often happens after the line's shortening, which indicates decreasing of unsteadiness;
- If after the rises and falls outside the lines there are rises and falls inside the lines, it's probable that the turn of tendency can occur;
- If the prices go outside the borders, the ongoing tendency is expected to be continued.
The lines of Bollinger resembles the Envelopes Moving Averages indicator. The basic distinction between these indicators is that the borders of envelopes are placed over and under the line of changing average on the certain distance, which is calculated in percents, while the borders of the Bollinger lines are placed on the distances equal to definite number of standard deflections.
Bollinger Bands can help to define if ongoing data field values are behaving normally or breaking out in a new direction. For instance, when the closing price of a Forex market moves over its upper Bollinger Band, it usually increases in that direction. Bollinger Bands also helps to find out when trend reversals may happen. A reversal is usually characterized by new peaks or falls outside of the bands followed by another peak or fall inside the bands.
Bollinger Bands are a pair of values put as an "envelope" around a data field. To measure the values you should take the changing average of the data for a definite period and subtract or add the definite number of standard deflections for the same period from the moving average.
Bollinger Bands resemble Trading Bands and share many of their traits. However trading bands do not differ in width based on inconstancy.
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The Breadth Thrust Indicator, one of basic market momentum indicators, was developed by Dr. Martin Zweig. He proved that the majority of bull markets start with a Breadth Thrust. To calculate the indicator you should divide a ten-day EMA of the number of advancing issues by the number of advancing plus declining issues. So "Breadth Thrust" happens when the indicator grows from 40% to 61.5%. This fact demonstrates that the market has quickly moved from an oversold condition to the position of strength. Still it's not overbought yet.
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Japan gave birth to candlestick charts more than five hundred years ago. The technical analysis was first used by the Japanese in late 1600s at Dojima Rice Exchange while trading rice. The first trader who has reached the fortune by forecasting prices using the past price data was Munehisa Homma, a famous trader of this exchange. Homma has created a number of principles that are used in Japan nowadays. The set of data containing open price, high price, low price, and close price is traced in the chart as a candlestick.
The candlestick turns hollow (white or in some cases green) if the close price exceeds the open price. A filled (black or red) candlestick is seen when the open price exceeds the close one. The body (either filled or hollowed) of the candlestick is formed out of the difference between the open price and close price whether the shadows, which are thin lines at the top and at the bottom of the candlestick, give the information about the trading range during the candlestick's period. The upper shadow ends at the level showing the high price of the period and the lower shadow ends at the level of low price.
Technicians use candlesticks. Such popularity of candlesticks can be explained by their pleasant and comfortable outlook unlike any other techniques using bar or line charts. Candlestick chart can give some additional info about the prices concerning the correlation between the high and low and the open and close. Candlestick charts uncover the data of the possible market strength as well as of its overall structure. You should remember only 12 general patterns concerning Candlesticks. There are about 40 patterns of reversal and continuation that can be trading signals for you while using Japanese Candlesticks. Any of these patterns may possibly predict future price movement. This dozen signals are the ones you are likely to remember.
Most investors consider only these signals of Japanese Candlesticks usage enough for planning profitable trading decisions. They are the ones that watched by most of the traders most of the time. But reading this you shouldn't think that other patterns don't worth your attention. You can effectively make profits in case you follow these other signals. But they occur really seldom in actual trading. Their showings are thought to be not as reliable as of the major ones despite they can show very strong possibility of reversal. The pattern when open and close prices are equal of very close is called Doji. In this situation shadows length is not taken into consideration. Japanese explain this situation as the conflict of bears and bulls. Doji indicates the general hesitation of investors. The Gravestone Doji appears when both close and open become the low of the day. This is the sign of possible tops despite it's located in the market bottoms. This signal looks like a gravestone, that's why it is called Gravesone Doji.
When the candlestick has one or two very long shadows, the situation is called the Long-legged Doji. It signalizes that the market has reached its tops. The Rickshaw Man occurs when the open and close are located in the session's trading range middle. It is thought that this situation shows the trend losing its direction. The end of the downtrend forms the Bullish Engulfing Pattern. The white candlestick has its open price below and the close price above the ones of the previous day black candle body. This total exceeding of the previous day's values says that that the enormous pressure of the buyers overcomes the one of the sellers. The Bearish Engulfing Pattern is an opposite process to the bullish one. It occurs when an uptrend comes to an end. The black body of an actual candlestick gets longer than the white body of the previous day one. This process is the sign of the bears winning. When a bearish pattern lasts for two days and reaches the end of an upturn as well as the highest level of an overloaded are of trading, then the Dark Cloud Cover occurs. In this case the first day gives a reliable white candlestick and the second day opening price exceeds any of the values of the previous day.
The bottom reversal may be accompanied by the Piercing Pattern. It consists of two candlestick patterns that are located at the declining market end. The candlestick of the first day is black whether the one of the second day corresponds a long white candlestick. This day has an extreme low opening price that is even lower that any price traded the day before. The patter closes at a price which is higher than the middle of the "black day" candle.
If candlesticks have long shadows at their bottom along with the small size of real bodies, it is called Hammer and Hanging-man. These bodes form high price of the session. A Hammer occurs when the pattern described here takes place when the market trends down. This shows the trends looking for the base. Japanese call this process "trying to gauge the depth" or takuri.
In case the market is trending down, the Shooting Star Formation is a signal of bullish market approaching. This is also called an inverted hammer. Still, you should be patient until the bullish market gets verified. Now after we have learnt about some major signals, it is time to see how useful some other formations may be.
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This section will cover some basic candlestick patterns, but first you should become familiar with some basic candlestick terms.
A long candle is a very long body when compared to other most recent candles.
A short candle is of course, just the opposite and usually indicates consolidation. It occurs when trading was confined to a narrow range during the period. The term white bodies refer to periods of extreme buying pressure.
Black bodies refer to just the opposite, period of extreme selling pressures.
Candlesticks in a long days pattern are shorter than the actual body. They indicate the large differences between the price at the time the market opened for the day and the price at which is closed.
Candlesticks in short day patterns will be short lines within a short body. These lines represent the minimal changes between prices at the time the market opened for the day and the price at closing.
A Marubozu pattern indicates that there are no shadows present in the bodies.
A White Marubozu is represented by a long white body that doesn't contain any shadows. It's usually the first indication of a bullish trend, but can indicate the trend will continue or reverse.
A Black Marubozu is represented with a long black body and generally indicates a bearish continuation period or reversal pattern.
When the shadows are longer than the body itself, it's referred to as a Spinning Tops pattern. In this type of market pattern, the color of the body isn't actually important. The pattern is an indication that there is a lot of indecision between the bearish and bullish market trends.
Stars and Rain Drops Patterns, along with reversal patterns are some of the more complicated patterns in the market.
A Star pattern forms whenever a small body peaks above the long body of the previous market day.
A Rain Drop pattern depicts a drop; it appears when small bodies fall just below the lowest peaks on the long body of the previous day.
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There are also several types of reversal candlestick patterns within Forex trading, as defined below.
· Dark Cloud Cover
· Engulfing
· Evening Star
· Harami
· Morning Star Doji
· Piercing Line
· Three Black Crows
· Three White Soldiers
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During an upward trend in the market gaps will begin to open, but they are not stable and will lose ground falling below the midpoint of the market the previous day. This pattern indicates the opportunity for investors to capitalize at the opening of the market the next day. This is actually a warning sign for bullish investors. This candlestick pattern is the exact opposite of the Piercing Line pattern. This pattern indicates a bullish trend and has a high reliability rate.
· A white body followed by a black body.
· The black body passes the midpoint of the prior white body.
· This candlestick pattern occurs in an uptrend.
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Candlestick Engulfing Pattern
This pattern occurs when a candle body of the days market completely engulfs the body of the previous day. There are also several engulfing patterns, white engulfing candles are bullish, black engulfing candles are bearish. A bullish engulfing commonly occurs when there are short term bottoms and a bearish engulfing will occur when the market is at the top. Many of the other candlesticks, such as Dojis, Hammers and Hanging Man, require the confirmation that a trend change has occurred that follows an engulfing pattern. This pattern indicates a bullish trend and has a high reliability rate.
When engulfing occurs in a downward trend, it indicates that the the trend has lost momentum and bullish investors may be getting stronger.
· The first day's color indicates the trend of the trading day.
· The second real body should have the opposite color of the first real body.
· The second day's body should completely engulf the previous day's body.
When engulfing occurs during an upward trend, it indicates the market will open with a new high. This high will be followed by a high volume of sell-offs, that result in the day closing at or below that of the previous days opening. This indicates that the upward trend has suffered and became weak and the bearish investors may be gaining some strength in the market. This pattern indicates a bullish trend, but has only a moderate rate of reliability..
· The first day's color indicates the trend of the trading day.
· The second real body should have the opposite color of the first real body.
· The second day's body should completely engulf the previous day's body.
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In the candlestick theory, there are two main patterns that are continuous, the Falling Three Methods and the Rising Three Methods.
A long black black day will occur in a downward trend and be followed by three days of small real bodies that create a short upward trend. However, by the fifth day, the bears will step in rather strongly and cause the market to close at a new low rate. This small upward trend that occurs between two long black days reflects the consistent behavior of the investors taking a small break. This downward trend will usually continue for a time. It denotes a bearish trend and has a high rate of reliability.
1) The first day will be a long black day.
2) The second, third, and fourth days that follow will have small real bodies. The rates will remain within the range of the beginning day and will follow a brief period of an upward trend.
3) The fifth day is a long black day. When the market closes on this day, it will close at rates that are below the rates the market closed with on the first day.
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During an upward trend, a long white day will occur that is followed with three days in which small real bodies have fallen into a short downward trend. Again, this trend is indicative of the investors taking a small break. At the close of the fifth day, the market will close at a new high rate, this results when because the bulls have came in strong. This method also indicates a bullish trend and has a high reliability rate.
1) The first day will be a long white day.
2) The second, third, and fourth days that follow small real bodies. The rates reflect a brief downward trend, but still remain within the range that the market had on the first day.
3) The fifth day is a long white day. At closing time on this day, the market will have rates that are above those on the first day of closing.
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There are some types of single candle patterns in candlesticks' theory. They are the following:
· Dragonfly Doji
· Gravestone Doji
· Hammers/ Hanging Man
· Hollow Red Candles
· Filled Black Candles
Doji's are reversal candlesticks that are formed when the market opens and closes at the same level. This pattern indicates there is a lot of indecision in the prices of stock. Depending on how long the shadows are and where they're located, Doji's can be divided into different formations such as Doji, long legged Doji, butterfly, gravestone and the 4 price Doji.
Doji's become more significant to the market when they appear after and extended period of long bodied candles, whether they are bullish or bearish and is confirmed with an engulfing. They follow a bullish trend and only have a moderate rate of reliability.
A long legged Doji candlestick forms when the stocks open and close prices remain the same. This Doji is much more powerful if it is preceded by small candles. It indicates a sudden burst of popularity in a stock that previously hasn't been very popular, thus can imply the beginning of a change in trend.
Dragonfly Doji's are Doji's that opened high in the market, experienced a notable
decline, but received enough support to close at the same price at which it
opened. They are often seen after there has been a moderate decline and when
they are confirmed with a bullish engulfing, they are indicators of a bottom
reversal. Dragonfly Doji's indicate a bullish trend that offers moderate
reliability.
The Dragonfly Doji has a higher reliability rate associated with it than the Hammer does.
· The long lower shadow is about two to three times the size of the real body.
· There is very little upper shadow, or none at all.
· The real body is at the upper end of the trading range.
· The color of the real body is not important.
Gravestone Doji's are the opposite of the Dragonfly Doji and when confirmed with a bearish engulfing, are the top indicators for a reversal. Appropriately named, they look like gravestone's and could forecast doom for the stock. When the stock opens and closes at the same level after Forex trading, it's referred to as 4 price Doji's. This very rarely occurs and is generally only evident with securities that are thinly traded. This is a bullish trend that provides investors with moderate reliability.
· Small real body at the upper end of the trading range.
· Upper shadow usually at least three times as long as the real body.
· Very little lower shadow or none at all.
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The Chaikin Money Flow compares sum volume to the closing price and the daily peaks and falls to define the number of issues being purchased and sold of a certain security. This indicator was developed by Marc Chaikin.
It's supposed that a bullish stock has a rather high close price within its daily range and an increasing volume, and the indicator is based on this statement. Still if a stock is permanently closed with a rather low close price within its daily range with high volume, this demonstrates a weak security. There is selling pressure when a stock closes in the lower half of the period's trading range and there is pressure to purchase when a stock closes in the upper half of a period's range. Certainly the precise number of the indicator's periods can differ depending on the sensitivity and the time limits of individual investors.
If Chaikin Money Flow is less than zero it's a definite first bearish signal. If the point is below zero it means that a security is experiencing distribution or stays under selling pressure.
A second possible bearish sign is the period of time for which Chaikin Money Flow has been below zero point. The more time it's negative, the more possible is distribution or long selling pressure. Long periods below zero can mean bearish sentiment towards the basic security and possibility of downward pressure on the price.
In the end, the third possible bearish signal is the degree of selling pressure. It can be defined by the absolute level of an oscillator. As a rule, readings on both sides of the zero line (plus or minus 0.10) are not supposed rather strong for guaranteeing bullish or bearish signals. If the indicator moves above +0.10 it's a sufficient sign for warranting a bullish situation. Just as if the indicator falls under the point of -0.10, the degree selling pressure starts warranting a bearish signal. Marc Chaikin proves that a reading above +0.25 predicts strong buying pressure. On the contrary, a reading below -0.25 is the signal of strong selling pressure.
The Chaikin Money Flow is based on the supposition that a bullish stock has increasing volume and a rather high close price within its daily range which means strong security. Still there is a weak security if it's permanently closed with a rather low close price within its high volume and daily range.
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This volume indicator, Chaikin's Oscillator, is called after its developer Marc Chaikin and is a difference of moving averages of the accumulation/distribution indicator. Elaborating it Chaikin proceeded with the work of his forerunners Joe Granville and Larry Williams.
The volume indicator of accumulation/distribution by Marc Chaikin technically analyses both market indexes and separate shares, and should also comprise knowledge of tenders' volume to help analysts to get the right vision of the essence of every particular market.
In many cases only a discrepancy of volume and the market prices predicts an important market turn. It allows foreseeing internal forces and market weak points. Technical analysts always knew that tenders' volume is very important; nevertheless, some well-known researches in this field were not acknowledged till the latest 60th years when Joe Granville and Larry Williams started their studies on connection of the price and volume more effectively. The price and volume were thought to be rising and decreasing simultaneously for a long time, and that any violation of this dependence happens as a result of leaps in the price tendency. One of these theories was the Granville's concept of balance volume (IAV) which's rather clear but too simple and therefore not irreproachable. This concept says that the whole volume in day of a increase in prices is considered as accumulation, and in day of decline as distribution.
According to IAV, the prices' noticeable short-term and intermediate rises and falls very often turn out to be quite true. There's a precise technical signal that predicts the upcoming change of the market prices. It usually happens when the formation of a price extremum goes together with a discrepancy of IAV line. According to this rule, the so-called concept of balance volume was elaborated and improved by another researcher, Larry Williams.
Granville and Williams surveyed the market in different ways: the first one compared running close price with previous, the second one - close price with open price. In this way they found out what occurred - accumulation or distribution.
The cumulative indicator developed by Williams lets add to its cumulative value some share of day time tenders' volume in case if the close price exceeds the open price and subtracting a share of volume in case if the close price is less than the open price.
That's why we can surely say that accumulation/distribution indicator turned out to be a more successful principle of the analysis than that of volumetric divergences by Granville. And when Williams developed oscillator on the basis of an accumulation/distribution line, this new oscillator allowed getting even more exact buy or selling.
In the early seventies it was quite impossible to make calculations according to Williams's formula without phoning the broker every day because daily newspapers have stopped printing data on the share's open price. That's why Chaikin created Oscillator and replaced the open price in Williams's formula by the average day.
So if there is a reliable instrument of the market analysis and a tool of opportune defining buy and sell signals - it's Chaikin's Oscillator. There are three main principles in the oscillator's concept.
An accumulation (maximum plus minimum) will definitely occur this very day if the share or an index is closed above the average value for the day. The accumulation becomes more active the closer the level of share close or an index reaches the maximum rate. Vice versa, the distribution occurred this day once the share gets lower than the average day price. The distribution becomes more active the closer you get to the minimum rate.
As a rule, when prices constantly go up, tenders' volume and strong volume accumulation are also rising. Indebtedness of volume at prices' growth demonstrates lack of fuel for further rise while the volume of some types of fuel feeding market increases. Vice versa, when the market prices decrease low volume may be observed, and finally there is a panic liquidation of institutional investors' positions.
Chaikin Oscillator also allows following volume of the market money resources. So one is able to predict market rises and falls - both short-term and intermediate term - with the help of comparing changes of volume and prices.
It's recommended to use Chaikin Oscillator with other technical indicators because there are still no irreproachable instruments of technical analysis.
Chaikin Oscillator can be also used differently when change of its direction serves as a buy or sell notice but only if it corresponds to the direction of the price tendency.
That's a broker gets a clear buy signal when the share on the rise and its price over a 90-day's moving average turn of oscillator curve goes upwards in the field of negative values. It's true only when the share price exceeds a 90-day's moving average. The broker gets a sell signal when the turn of the oscillator goes downwards in the field of positive values - which is over zero. It's true only in case if share price at this particular time is lower than a 90-day's moving average of the nearest price rate.
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With the help of the Volatility Chaikin's indicator you can measure the distinction between high and low prices which clearly demonstrates peaks or falls of the Forex market. There are two variants of interpreting the result.
The first method supposes that an increase in the volatility indicator within a rather short time period demonstrates the proximity of a bottom. While a volatility decrease within a longer time period shows a close top.
The second method supposes that Forex market peaks are usually accompanied by increased inconstancy and that the last stages of a Forex market bottom are usually accompanied by decreased inconstancy.
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The Chande momentum oscillator is calculated
within preset time interval by the following formulas:
diff = Pi - Pi-1,
where Pi -the price (usually closing price) of the current period;
Pi-1 -the price (usually closing price) of the previous period;
If diff > 0, then cmo1i = diff, cmo2i = 0.
If diff < 0, then cmo2i = -diff, cmo1i = 0.
sum1 = Sum(cmo1, n) - summary value of cmo1 within n periods.
sum2 = Sum(cmo2, n) - summary value of cmo2 within n periods.
CMO = ((sum1-sum2)/(sum1+sum2)) 100
The CMO Oscillator basic methods of using are:
- As the indicator of tend. The sell operations are performed when CMO of the short period crosses the CMO of the long period. Purchase operations are performed when CMO of the long period crosses the CMO of the short period.
- The standard method of CMO interpretation is looking for overselling/overbuying. Overselling occurs if value is under -5. Overbuying occurs when the value overcomes +50 point. The aforesaid figures are similar to the 70/30 level of RSI Indicator.
The Chande Momentum indicator is a momentum oscillator. This oscillator can be used as a trading signal in two various ways.
The first method is to purchase when the oscillator crosses above its MA line and to sell when the oscillator crosses below its MA line. The second is to measure overbought or oversold levels for a certain currency.
The Chande Momentum indicator is built using the sum over a certain period of price changes on up days, sum (high-low) up, and the sum over the same period of prices on down days, sum (high-low), down. An exponential this line's moving average is afterwards overlaid upon the oscillator as a signal line. The oscillator needs two parameters: the period for the moving average and the period when the price ranges will be summarized.
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Bill Williams named Chaos Gator indicator in his book "New Trading Dimensions". The book touches upon chaos theory, and lets readers debate if the so-called supercomputers were used in developing different trading methods. The majority of readers is sure that the author's systems is an ideal filter and a good start for a short term trading system.
This indicator consists of 3 changing averages based on the Median Price (High+Low/2) for 21, 13 and 8 days, with 8, 5 and 3 days displacement correspondingly. The most used method of explaining a moving average is the comparison of the dependence of the security's price on moving averages of the security's price, and vice versa, or relationship between a few moving averages.
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First the Commodity Channel Index was developed as the indicator for determining of reversal points in the commodity markets. But then it became rather popular in the share market and in Forex market. CCI was created by Donald Lambert.
The supposition on which the indicator is based consists that all actives move under influence of definite cycles, and maxima and minima appear with definite intervals. CCI corresponds to oscillators, measuring speed of price fluctuations. The index demonstrates a deflection of the ongoing price from its average value. Lambert developed a constant at a level 0.015 that approximately from 70 up to 80 % of CCI values were between levels -100 and +100 -- for the purposes of measurement.
Calculation of the Typical Price:
Calculation of the Simple Moving Average from Typical price:
Calculation of the median divergence.
Where
Formula of the Commodity Channel Index will look as follows:
For the purposes of scaling, Lambert has installed a constant at a level 0.015 that approximately from 70 up to 80 % of CCI values were between levels -100 and +100.
The Commodity Channel Index is moving over and under a zero mark. The percent of Commodity Channel Index values (between +100 and -100) correspond to the number of the periods used for its building. Shorter - with smaller quantity of the periods - CCI will be more inconstant, and if less - its values will be placed in a range section between +100 and-100. Correspondingly, the greater number of periods will be used for CCI measurement, the more values percent of the indicator will be between the points of +100 and -100.
The basic characteristic of the CCI named by the author is one-third of full cycle. For instance, from a minimum up to an upcoming minimum or from a maximum up to an upcoming maximum, or if a market movements' cycle is thirty days, recommended value for CCI is ten days.
Important: The determination of the cycle's length doesn't depend on the Commodity Channel Index and any other tools. It's is a rather many-sided indicator which can cause a wide range of purchase or sell signals. CCI is used both by investors and traders for determining of reversal price points. It is extreme on the price chart and trend force and its results should be used together from the rest of indicators.
Here is the author's advice on the work with the CCI index in case it moves above +100 and below-100 and sends sell or purchase signals. Buy or sell signals happen 20 - 30 % of the time while from 70 up to 80 % of time Commodity Channel Index's value is fluctuating between +100 and -100. It's supposed that if CCI overcomes the level of +100 from below upwards, it means that the currency pair is moving in the direction of the strong ascending trend, thus there is a clear purchase signal. And once CCI goes under +100 the position is supposed to be closed on a return signal. At the same time, it's considered that if Commodity Channel Index moves to -100 point from top to down, it means that the currency pair is meeting a strong descending trend, and there's a sale signal. As soon as CCI again crosses the level of -100 this position is considered closed.
Later CCI started to work for determining if market is overbought or oversold, for definition of reversal points. The currency pair is considered overbought once it overcomes +100 level and is oversold once CCI goes under -100 point. While CCI stays in an overbought position which is above +100, the sale signal appears in case if CCI crosses a level +100 in the opposite direction - from the peak to the bottom. After CCI has entered into an oversold zone which is under -100 level, the purchase signal appears when CCI crosses -100 point in the opposite direction - from the bottom to the peak.
CCI is based on divergence analysis which widens a trading signal. Positive discrepancy less than -100 increases the signal force when the price crosses a level-100 from the bottom to the top. It happens only if there are 2 consecutive minima on CCI when the second minimum is more than the first one on the indicator but below the first one on the chart of prices. Negative divergence over +100 increases the signal force when CCI crosses +100 from top to bottom. The condition for this situation is 2 consecutive maxima on the indicator above +100 when the second maximum is under the first one on the indicator, but above on the chart of prices.
One can treat break of trend lines formed on the indicator as input or output signals from a position. At overbought - above +100 - the break of the trend line downwards is supposed a sale signal and at an oversold level - below-100 - the break of the trend line upwards is supposed a signal to growth of the market. Thus these lines are also based on the connection of consecutive maxima or minima.
The CCI works effectively only in cases when the market is really subject to rather permanent cycles because it was developed definitely for the cyclic markets. That's why it's more problematic to choose an optimum period if Forex cycles are difficultly distinguished in market. Caution: Every, even an irreproachable indicator used wrongly results in a number of false signals and accordingly causes considerable losses in your deal. So before using any indicators on real accounts, first test their work for the demonstration account or check them as trading strategy.
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The Commodity Selection Index (CSI) is developed to help select commodities that fit short-term trading. As an indicator of momentum, it's created for short-term traders who can handle the risks connected with rather inconstant markets. A high CSI rating demonstrates that the commodity has strong volatility characteristics and trending. The Directional Movement factor brings these characteristics in the calculation, the volatility characteristic by the Average True Range factor.
High CSI values are one of the factors with which CSI developer Welles Wilder describes his understanding of trading commodities. As these commodities are very changeable, they have the potential to make the fastest return in the shortest period of time. The ADXR component of the Directional Movement Indicator is also a base for the CSI. Wilder's book which is called "New Concepts in Technical Trading Systems" gives a wide range of calculation details on the Commodity Selection Index.
If CSI rating is high it means that the commodity has strong trending and volatility characteristics. The volatility characteristics are brought out by the Average True Range factor, and the trending characteristics are brought out by the Directional Movement factor in the calculation.
There is a connection between the Commodity Selection Index and the Directional Movement Index. The CSI is used to rate items in the more volatile short term because the ADXR plot of the Directional Movement Index is used for rating contracts from the longer term, trend-following point of view. The Commodity Selection Index takes into consideration such factors as the Average True Range, the ADXR from the Directional Movement Index, margin and commission requirements and the value of a one cent move. The item is more attractive for trading if the CSI rating is high.
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CP Volumentum Trend indicator responds to a discrepancy in volume from the standard, taking into consideration that volume often greatly grows at market turning points. The CP Volumentum Trend indicator unites price and volume into one indicator.
Volume discrepancy is estimated against the ongoing price action and depicted as a strength indicator or a trend indicator. The indicator shows high probability trading zones and is automatically connected to all the fluctuations and factors of inconstancy. The strength indicator is useful for confirming this fact behind the Volumentum Trend.
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Correlation Analysis compares a stock to any indicator or another stock and demonstrates how like or dislike they are to one another. One can use correlation analysis in two main ways - for defining connection between two securities and for defining the ability of an indicator to forecast the situation on the market.
The comparison of the correlation between an indicator and a security's price provides you with useful information. A high negative correlation - below -0.70 - shows that when the indicator changes, the security's price as a rule moves in the opposite direction. A high positive coefficient - over +0.70 - demonstrates that the indicator change as a rule forecasts a change in the security's price. A low - close to or equal to zero - coefficient demonstrates that the connection between the security's price and the indicator is not so important.
Also correlation analysis is useful for measuring the connection between two securities. As it often happens that one security's price causes or forecasts the price of another security. For instance, the correlation coefficient of gold against the dollar demonstrates a strong negative relationship. Thus, the dollar increase as a rule forecasts a decrease in the gold's price.
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The CVI takes into consideration market momentum for demonstrating money flows in and out of the market and is calculated by subtracting the volume of descending stocks from the volume of growing stocks and then adding the result value to an ongoing total figure. An effective method of interpreting the Cumulative Volume Index is to watch the general trends. The CVI demonstrates if there has been more down-volume or up-volume and how long the ongoing volume trend has been remaining on market.
The Cumulative Volume Index resembles On Balance Volume, or OBV, in some respects. Both indexes were developed to demonstrate if volume is flowing into or out of the market. The differ is in the following aspect: the OBV says that all volume is up-volume when the stock closes higher and that all volume is down-volume when the stock closes lower as up-volume and down-volume can't be used with individual stocks while the Cumulative Volume Index uses the actual up- and down-volume for the New York Stock Exchange.
It's also possible to search for increasing discrepancies between the CVI and a market index. When the market index demonstrates a new peak while the CVI doesn't react at all, it means that the market is going to correct itself to confirm the story based on the CVI results.
It's important to know that as the CVI as a rule starts at the zero point, the CVI numeric value is not so significant. The slope and pattern of the CVI - that's what significant.
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Cutler's RSI which is another kind of Welles Wilder's original Relative Strength Index turns out to be a momentum oscillator used to find and demonstrate overbought and oversold conditions. It does so by keying on special levels - usually 30 and 70 - on a "0 to 100-chart".
It can show the following information: Movement can be not at once clear on the bar chart Failure swings over 70 or under 30 which show reversals Support and resistance. Discrepancies between price Cutler's RSI and RSI are measured like that: RSI = 100 - (100 / (1 + RS) )
RS = UPAV:x / DNAV:x, and . . .
UPAV:x = (E, period's Closes UP) / period
DNAV:x = (z: period's Closes DOWN) / period
A Close UP (or DOWN) = CLOSE - CLOSE previous
If the difference is positive, it is a Close UP. If the difference is negative, the sign is changed and it is a Close DOWN.
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DeMarker Indicator which demonstrates phases of price depletion which usually correspond to price highs and bottoms fluctuates from 0 up to 1. The turn of the prices downwards is expected if the parameter of the indicator moves above a mark 0.7. The turn of the prices upwards is expected if the indicator moves below a mark 0.3.
That's why the DeMarker indicator searches for the phases of price exhaustion which as a rule corresponds to the prices' highs and bottoms. The DeMarker fluctuates between 0 and 1 point. If the indicator moves over 0.7, the price turn downward is predicted. If the indicator is under the 0.3 level, the price turn upward is predicted.
1. N - the period of averaging.
Value of DeMarker
indicator in an
interval j is calculated as follows:
1. DeMaxj calculation.
If Highj> Highj-1, DeMaxj = Highj - Highj-1, differently
DeMaxj = 0
2. DeMinj calculation.
If Lowj < Lowj-1,
DeMinj = Lowj-1 - Lowj, differently DeMinj = 0
3. DeMarker indicator calculates as follows:
The DeMarker indicator compares the period maximum with the previous period maximum which are summed up in the end. The indicator of Demark is used to search the regions with high and low risk for selling or purchasing. It registers the areas of price depletion, which correspond to price highs and bottoms. The DeMarker indicator fluctuates from 0 up to 1. If the indicator falls below 0.3, they predict the turn of the prices upwards. If the indicator goes over 0.7 level, they predict the turn of the prices downwards.
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Detrended Price Oscillator (DPO) is another variation of a moving average. It gives a tool of seeing basic cycles which are not so clear when the moving average is viewed in its primary phase by well-hiding the main cycles. The moving average line is drawn as a straight, horizontal basis line on the Detrend chart. Afterwards price bars are put along this line depending on their correspondence to the moving average line.
The DPO tries to remove the trend in prices. Detrended prices let you more easily identify both cycles and oversold or overbought levels. One builds long-term cycles using a series of short-term cycles. When you analyze these shorter term components of the long-term cycles you see they are sometimes useful in identifying main extremums in the longer term cycle. The DPO helps you eliminate these longer-term cycles from prices.
To calculate the DPO, create an n-period simple moving average (where "n" is the number of periods in the moving average). Afterwards subtract the moving average "(n / 2) + 1" days ago from the closing price which results in the DPO.
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DMI filtrates on price exchange rates lays in the basis and lets enter the market only if substantial trends exist. It is developed for increasing the strength of all upward or downward trends in the Forex trading market. The Directional Movement Index consists of Average Directional Index, or ADX, which defines the strength of the trend and DI+ and DI- which demonstrate the strength of the decreasing and increasing prices correspondingly. ADX is a moving average of Directional Index, or DX, with a smoothing constant makes time period selected for calculating upward and downward fluctuations twice as long.
1. N - the period of averaging
1. Calculation of the positive
and negative directional movement - DM - +DMj and-DMj
if Highj> Highj-1, +DMj = Highj - Highj-1, differently +DMj = 0
if Lowj < Lowj-1,
-DMj = Lowj-1 - Lowj, differently-DMj = 0
Smaller value from +DMj and
-DMj is equated to
zero. If they are equal, both are equated to zero.
2. Calculation of the true
range- TRj
TRj = max (|Lowj - Closej-1 |, |Highj - Closej-1 |, |Highj - Lowj |)
3. Calculation of a positive
directional index and
the negative directional index - +DIj and -DIj
If TRj = 0, +SDIj = 0, -SDIj = 0,
if TRj 0, +SDIj = +DMj / TRj; -SDIj =-DMj / TRj
Smoothing +SDI and -SDI by exponentional moving average (EMAve),
we receive +DIj and
-DIj
+DIj = EMAvej (+SDI, N)
-DIj = EMAvej (-SDI, N)
4. Calculation of the directional movement - DXj:
DXj = (| +DIj --DIj | / | +DIj +-DIj |)
In a trading system with DMI in the centre, there is a purchase signal when the DI+ value overcomes the DI-, and for a sell signal, search the point in which DI exceeds DI+. Both Forex trading signals are given only if there is a rather strong trend- for instance, if the value of ADX is more than 25%.
How does the Directional Movement Index give the opportunity to define if a currency is trending? The main Directional Movement system compares the 14-day +DI, the so-called Directional Indicator, to the 14-day -DI. There are 2 ways to do it: by subtracting the +DI from the -DI or by placing the both indicators on top of each other. When the +DI exceeds the -DI specialists advice to purchase and when the +DI is under the -DI it's better to sell. They name these easy trading rules "extreme point rule" which is developed to prevent whipsaws and lower the deals' number.
According to the extreme point rule the "extreme point" is set on the day when the +DI and -DI cross. The extreme price is the low price on the day the lines cross when the +DI becomes less than the -DI. The extreme price is the high price on the day the lines cross when the +DI is over the -DI. Afterwards the extreme point is like a start signal at which you should execute trade deals.
For instance, when the +DI rises above the -DI (which is a clear purchase signal), you should wait a little before purchasing until the security's price rises above the extreme point - when the high price on the day that the +DI and -DI lines crossed. In case if the price doesn't move over the extreme point, it's better if a dealer foes on keeping up to the short position.
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Disparity Index was described by Steve Nison as "a percentage display of the latest close to a chosen moving average."
[ C - Mov(C,X,MA ) ] / [ Mov(C,X,MA) * 100 ]
Where X is the number of time periods
MA is the calculation type of the moving average.
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The Displaced Moving Average is use for phasing, for re-directing the data, for cycle estimation or just as a moving average trading system. It takes the ongoing moving average and moves it backward (or forward) in time.
The first number in the study defines the period of a simple moving average - for example, 28 days - the second parameter specifies the shift period - for example, 5 days. Enter a negative number to shift the moving average back - for example, 14 days. If the moving average is moved back, the rest part of the study is calculated with the moving average based on the available data for every day - for example, 13 days, 12 days, etc.
Displaced Moving Average system can turn out to be rather helpful in valuing and placing of the cycles.
The moving average mathematics system will always make it trail or drop behind the current price data. You will have a more precise description of the moving average corresponding to the actual price on the chart if you put the moving average in its center.
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The Double Exponential Moving Average, or DEMAconsists of a single exponential moving average and a double exponential moving average. Its main preference is that it provides a diminished amount of delays than if the two moving averages had been used apart.
The DEMA is calculated via:
(2 * n-day EMA) - (n-day EMA of EMA)
where EMA = exponential moving average
When price crosses the moving average and increases, a continuing uptrend can be predicted. So as far as you see, it's possible to use the Double Exponential Moving Average in the same way as the Simple Moving Average or Exponential Moving Average.
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The Dynamic Momentum Index, or DMI, very much resembles the Relative Strength Index. The distinction is that the DMI uses inconstant time periods - from 3 to 30 - while RSI uses only the constant ones.
The inconstancy of the DMI time periods is restricted by the recent inconstancy of currency trading prices. The DMI is more sensitive to price changes when Forex prices are inconstant. When there are no fluctuations on Forex market, the DMI uses a greater number of time periods. During more active Forex trading markets while a smaller number of time periods are being used. Thus, the DMI depends on fluctuations more in the Forex market and demonstrates changes more quickly than the RSI.
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The Ease of Movement Indicator was developed to show the link between volume and price change and it demonstrates how much volume is needed for changing prices.
A sell signal occurs when the indicator crosses below zero. Here prices are moving downward more easily. A purchase signal occurs when it crosses above zero. In this case prices are more easily moving upward.
Low values occur when prices are moving downward on light volume. High Ease of Movement values is produced when prices are moving upward with light volume. In case if prices remain unchangeable or if heavy volume is needed to change prices, the indicator will stay near zero point.
Developed by Richard Arms, Jr., perhaps better known
for the Arms Index (TRIN), the formula is as follows:
[ {(H+L)/2} - {(Hp+Lp)/2} ] / [ V/(H-L) ]
Where:
H = Today's high
L = Today's low
Hp = the previous day's high price
Lp = the previous day's low price
V = current day's volume
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The Fisher Transform indicator is based Stocks and Commodities Magazine article, "Using the Fisher Transform" by John Ehlers published on November 2002. It's supposed to become a main turning point indicator.
With clear turning points and a quick response time, theFisher Transform uses the suggestion that you can develop almost a Gaussian probability density function by normalizing price or an indicator (for example, RSI) and referring the Fisher Transform while prices don't provide a normal or Gaussian probability density function. It's that well-known "bell-shaped curve".
You can use the resulting peak fluctuations to determine price reversals rather definitely.
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Developed in 1989, The Elder-rays use exponential moving average indicator, or EMA, the preferable period of which is 13 as a tracing indicator. The oscillators reflect the bears' and bulls' power.
The Elder-rays include the characteristics of trend following indicators and oscillators. Three charts for placing the Elder-rays are used: on one side - the price chart and EMA are placed, on two other sides - bulls' power oscillator, or just Bulls Power, and bears' power oscillator, or just Bears Power.
Elder-rays can be used either individually or in bunch with various other tools. While using them individually, it's important to remember that the EMA slope defines the trend movement, and position should be opened in its direction.
The Elder Ray is a very precise and effective means of highlighting discrepancies between bull and bear power and prices and helping to choose right time for the best trading opportunities. Bulls and bears power oscillators are used for determining the moment for opening or closing of positions. One should open the following positions:
It's better to sell when:
1. The Bulls Power oscillator remains positive, but declines step by step;
2. The Bulls Power oscillator declines leaving the Bears' discrepancy;
3. The last bottom of the Bulls Power oscillator is lower than the previous one;
4. There is a decreasing trend defined with the EMA fluctuations
The Elder Ray index actually consists of two indicators:
"Bull Power" (Daily High - n period moving average) and
"Bear Power" (Daily Low - n period moving average).
It's better to purchase when:
1. The Bears Power oscillator is negative, but still growing;
2. The Bears Power oscillator increases after the Bulls discrepancy;
3. The last peak of the Bulls Power oscillator is higher than the previous one;
4. There is an increasing trend defined with the EMA fluctuations
It is better to keep back at the positive values of the Bears Power oscillator and not to open short positions when the Bulls Power oscillator is negative. The best time for trading is discrepancy between the Bulls and Bears Power and prices.
In fact, the Elder Ray index includes 2 indicators: "Bear Power" (Daily Low - n period moving average) and "Bull Power" (Daily High - n period moving average)/
Bear Power is used to calculate the potential for the price to fall under the moving average. And Bull Power is used for calculating the potential for the price to grow over the moving average. There are short positions when the Bull Power is more than zero and there is a bearish discrepancy. And Long positions are assumed when the Bear Power remains under zero and there is a bullish discrepancy.
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The distinction between 5 period MA & 35 period MA depicted as a histogram is called - Elliot Oscillator.
In wave 3 the prices are trading in a rather strong trend. That's the reason why the 5ma moves away from 35 MA which is slower at a fast rate and the result is that the oscillator gets a high peak in ~3. There is no strong trend as in ~3 and therefore a smaller peak in the oscillator, even though in ~5 prices are higher. Historical tests demonstrate that 94% of time the 5/35 oscillator moves back to the zero point during ~4 and consequently holds with ~4.
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To demonstrate the Forex trading range of a certain Forex trading market over and under an average price we use Envelopes. To do this you should take an exponential moving average against the Forex market and then use a trading band by subtracting and adding a definite percentage of the day average. In this way the price 5% over and 5% under the average will be measured.
Envelopes determine the lower and the upper margins of the price range. Two moving averages - one of which moves upward and another one moves downward -are the base of the Envelopes.
It's the market inconstancy which defines the assortment of the best corresponding number of band margins moving. The higher this inconstancy is, the stronger the move becomes. Purchase signal occurs if the price attains the lower margin. Selling signal occurs if the price attains the upper margin of the band.
Envelopes also determine the upper and lower borders of a security's ordinary trading range. It's a sell signal if the security attains the upper band whereas a purchase signal if it moves to the lower boundary. It's the security volatility range which influences the preferable percentage move (the more inconstant, the bigger the percentage).
The Envelopes interpretation resembles the interpretation of Bollinger Bands as too fervent dealers make the price move to the extremes - for example, the upper and lower bands - at which point the prices are often fixed by moving to more optimum points.
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To measure an exponential moving average you should unite a definite percentage of the actual value with an inverse percentage of the latter value of the exponential moving average (e.g., if you've given 25% weight to the actual value, you should sum up 25% of the actual value to 75% of the previous moving average to get the actual moving average). To define the corresponding weight which previous values should be given you should use the period. To determine the percentage you use the formula 2/ (period+1) (e.g., a period of 7 will result in 25% (2/ (7+1)) of the actual value and you use 75% of the previous exponential moving average value).
Caution: All previous values, even values from before the period, form an actual exponential moving average. The period is used as an approximate calculation of the time period for which values will stay essential in the estimation. At the start of a data series the value is supposed to be zero so you may pay mo attention to the values until the period is finished.
Moving Averages may turn out to be helpful for smoothing raw, noisy data, for example, daily prices. Price data can change very much from every day and still conceal if the price is growing or decreasing. You see even a more general picture of the basic trends can if you watch the moving price average.
As moving averages are sometimes applied for the trend defining, they can also be used to see whether data is opposing the trend. Entry and exit systems usually compare data to a moving average to determine if it is supporting a trend or starting a new one. That's why the exponential moving average is just one of the types of a moving average.
In an ordinary moving average, all price data has the same weight in the calculation of the average with the oldest eliminated value as each new value is added. And in the exponential moving average equation as the average is being measured the most recent market action gets greater importance. Still the oldest pricing data in the exponential moving average is never eliminated.
A sell signal occurs if the short and intermediate term averages cross from the top to the bottom the longer term average. On the contrary, a purchase signal happens if the short and intermediate term averages cross from bottom over the longer term average. If you trade only 2 exponential moving averages in a crossover system it's better to use longer term averages.
It's rather important to know that a 5-day exponential moving average usually consists of over 5 days worth of data and can comprise data from all the life of a futures contract. So such moving averages can be more successfully searched by their actual "smoothing constants," as the number of days of data in the computation remains equal for the 5-day average as for the 10-day average. Exponential calculations are held at various moving average values depending on the point you start with.
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Fast Stochastic Oscillator (Fast STO)
The Stochastic Oscillator was developed by the president of Investment Educators, Inc., (Watseka, IL) George Lane. The main notion of Fast STO is that when prices decrease, closing prices tend to be nearer to the lower end of the range. In uptrends the closing price moves towards the upper border of the range.
The Stochastic Oscillator consists of 2 lines - %K line and %D line which fluctuate between 0 and 100 on a vertical scale. The %K which is the main of two is depicted as a continued and unbroken line. The %D line is a moving average of %K. and is depicted as a dotted line. The Fast Stochastic is the average of the last three %K and a Slow Stochastic is a 3-day average of the Fast Stochastic. Use as a purchase/sell signal generator, purchasing when fast moves are higher then slow and selling when fast moves are under slow.
The majority of dealers use the Slow Stochastic Oscillator it provides more trustworthy signals. There are 3 variants of acting after getting the Fast Stochastic Oscillator results:
1. Purchase when the %K line moves over the %D line and sell when the %K line becomes less than the %D line.
2. Sell when the Oscillator moves over the point of 80 and then moves below that level. Purchase when the Oscillator - %K or %D - moves under the point of 20 and then rises back above that level.
3. Find distinctions - prices moving to a series of new peaks as the Stochastic Oscillator can't exceed the previous peaks.
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To build a Fibonacci Arc, the position of two extreme points must be set. This is done by drawing a trend line between the two points. This line can be drawn from the lowest cavity or gap, to the highest peak on the chart. Then three arches are created with the center arch falling at the second extreme point. The arches should be drawn at the Fibonacci levels of 38.2%, 50% and 61.8%.
A Fibonacci Arc is considered to demonstrate the potential levels for support and resistance. Generally, Fibonacci Arcs and Fans are both drawn on the chart at the same time. This allows the levels of support and resistance to be defined by the points where these lines cross. It should be understood, that the points crossing the arches from a price curve can vary depending on the scale size of the chart. But, because the arch is a part of a circle, its form is always constant.
Simply put, Fibonacci Arcs are constructed by first drawing a trend line between the two most extreme points on the chart. For example, the trend line should be drawn from the lowest gap to the highest opposing peak. Then, three arches are drawn with the second arch centered around the second extreme point.
The radius' of these arches represent the distances along the trend line in proportion to it's length and are equivalent to the Fibonacci levels of 38.2%, 50.0%, and 61.8% on the chart. By interpreting the Fibonacci Arcs, you are able to anticipate the support and resistance as prices approach the arcs.
The following chart will illustrate just how the arcs can supply information on support and resistance. The most common technique is to display both the Fibonacci Arcs and Fan lines together in order to anticipate the support and resistance at the points where the lines intersect. Remember that because the arcs are circular in relation to the chart axis, the points at which they cross the price date will vary depending on the scale size of the chart.
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Fibonacci Fans are drawn as speed resistance lines in the same way as the arcs, with the exception that they are drawn at the Fibonacci levels of 23.6%, 38.2% , 50%, 61.8% and 76.4% on vertical some line levels. These lines are considered to serve as levels of support for developing retracements or to signal a new descending trend. And, after a break, they can assess the levels of resistance.
To display Fibonacci Fans a trend line is drawn between two extreme points on the chart. In the same way that lines are drawn for the arcs, the lines for fans are drawn between the extreme lowest point and the opposing high peak. Then an invisible vertical line is drawn through the second extreme point. Then, three trend lines are drawn from the first extreme point so that they pass through the invisible vertical line at the Fibonacci levels of 38.2%, 50% and 61.8%.
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Fibonacci phi-Channel is used as an indicator of the price trend. This instrument is built on the basis of three extreme points.
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This technique is very similar to using speed resistance lines. Fibonacci numbers are frequently used to hypothesize which rates particular assets will gravitate towards. Use of these numbers is widely accepted in the currency market. There are four popular types of Fibonacci studies, arcs, fans, retracements and time zones.
In 1170 A.D., Leonardo Fibonacci a mathematician, discovered the relationship that is now referred to as the Fibonacci numbers while he was studying the Great Pyramid of Gizza, in Egypt. The Fibonacci ratio exists between any two successive numbers in the Fibonacci sequence. The numbers are a sequence of numbers for which each successive number is the sum of the two previous numbers. For example: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233 etc.
When the market is moving rapidly in any given direction, it sometimes experiences breaks where investors simply hold on to their profits. This phenomenon is known as retracements and generally creates good opportunities for investors to re-enter the market at some attractive levels before the move resumes. Retracements are usually similar in size. Technical traders in particular, pay considerable attention to retracements that are at the Fibonaccio ratios of 38.1% and 50%.
Fibonacci retracement is displayed by drawing lines between an extremely high peak and an opposing extreme low peak A series of horizontal lines are drawn to intersect the trend line at the Fibonacci levels of 0.0%, 38.2% with 61.8% or 33.3% with 66.6%, 50%, and 100%. When a significant price move occurs, either up or down, the prices will often retrace a significant portion of the original move; sometimes prices will trace the exact move. As prices retrace their steps, support and resistance levels will often occur at or near the Fibonacci retracement levels.
While retracement levels can be applied to both the price and the time, they are more commonly used to determine price. The most common levels used in retracement analysis are 61.8%, 38% and 50%. As a market move starts to reverse, the three levels are calculated by drawing a horizontal line from low to high. It is interesting to note that the Greek and Egyptian mathematicians also knew about the Fibonacci ratios. The ratio known as the Golden Mean was applied in both music and architecture. A Fibonacci spiral is a logarithmic spiral that is used to track patterns of natural growth.
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The logarithmic Fibonacci spiral provides connection between the price and time analysis. The spiral is built on the basis of a piece between two extreme points, set by the user. It is the answer to long searches of the decision, allowing to predict both the price, and time. The size of chambers increases proportionally to Fibonacci ratio 1.618 (this coefficient is set), and thus their form remains constant.
The spiral is easy for understanding and, theoretically, it is easy to apply in the markets. But, as it defines rotary points, signals of trading demand that positions got out to opposite current price trend (i.e. sale at the high price or buy at low price).
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As the series of Fibonacci numbers continues, it's interesting to not that any given number is 1.618 times greater than the preceding number and 0.618% of the next number. For example:
(34/55 = 55/89 = 144/233 =0.618) (55/34 =89/55 =233/144 =1.618), and 1.618 =1/0.618.
These same properties of the Fibonacci series occur throughout nature, science and math. The number 0.618 is often referred to as the "golden ratio", since it is the root of the following polynomial: x^2+x-1=0 which can be rearranged to x= 1/(1+x).
So, that's were the fib 0.618 comes from. The other fibs 0.382 and 0.5 commonly used in technical analysis have a less impressive background, but are just as powerful when used in a Technical analysis.
0.382=(1-.618)=(0.618*0.618)
and 0.5 is the mean of the two numbers.
Other neat fib facts (0.618*(1+0.618)=1 and (0.382*(1+.618))=0.618.
Technical Analysis commonly involves the use of Fibonacci numbers with or without any knowledge of the Elliot Wave to help determine potential resistance or support and price objectives. Retracements of 38.2% commonly suggest that the prior trend will continue, 61.8% retracements, generally mean a brand new trend has began to establish itself. Indecision is implied with a 50% retracement, while during healthy trends, 38.2% is considered natural retracements.
To determine the price objectives for a natural retracement at 38.2% you simply add the magnitude of the previous trend to the retracement during an upward trend in the market. And, subtract it during a downward market trend. Usually, after a retracement at 38.2%, the stock should peak the prior swing point (B) on heavier volume. It there is no volume, the magnitude of the move is usually diminished, especially if the volume is very low.
A-B =C-D when B-C =38.2% of A-B
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This index created by Alexander Elder calculates the Bulls Power at every rise and fall. The Force Index links the main parts of market data: price trend and decreases, the volumes of transactions. It's better to approximate this index with the help of moving average. Approximation with the help a short moving average contributes to finding the best opportunity to open and close positions though this index can be also used as it is. There's an advice to use two intervals in a short moving average. If the approximations is made with long moving average (period 13), the index demonstrates the tendencies and their fluctuations.
It's worth purchasing when the forces fall below zero (become minus) - when the indicator increases tendency. The force index demonstrates the going on of the increasing tendency when it increases to the new high. The signal to sell occurs if the index becomes positive during the decreasing tendency. The force index demonstrates the Bears Power and going on of the decreasing tendency if the index falls to the new bottom.
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The Forecast Oscillator is a comparison (in percentage) of the issue price and the price as seen by the Time Series Forecast Oscillator. It's an extension of the indicators which are based on linear regression.
The oscillator is above the zero point if the forecast price is higher than the current price. On the contrary, if it's below it turns out to be less than zero. When the forecast price and the current price are equal, the oscillator makes a zero. Current prices that are constantly over the forecast price suggest higher prices ahead and prices that are constantly under the forecast price suggest lower prices ahead.
It is calculated as follows:
(Close - Previous Time Series Forecast) * 100 / (Close)
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The following 4-Percent Model was also created by Ned Davis and described in Martin Zweig's book "Winning on Wall Street". With its help it is easy to measure and analyze market timing tool utilizing the weekly close of the Value Line Composite Index.
It reads that a sell signal occurs if the index decreases at least 4 percent. A purchase signal occurs if the index grows at least 4 percent from the latter value. In 1993 - 1998 utilizing this system to the stock market provided a return of 241% versus the buy-and-hold approach which provided a 120%-return.
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The combination of the Slow Stochastic and the Fast Stochastic is called a Full Stochastic. It uses 3 parameters:
The uniqueness of Slow Stochastic is that it uses a "smoothing factor" for the initial %K line that is "n-period" SMA (n is the same number as the middle parameter) of the initial %K line
The Full Stochastic Oscillator is more advanced and more flexible than the Fast and Slow Stochastic and can even be used to generate them. For example, a (14, 1, 3) Full Stochastic is equivalent to a (14, 3) Fast Stochastic while a (12, 3, 2) Full Stochastic is identical to a (12, 2) Slow Stochastic.
Much as the Fast and Slow Stochastics, the number of periods used to create the initial %K line is defined by the first parameter. %D is again the number of periods that is used to create the signal line.
Readings above 80 act as an overbought signal while readings below 20 act an oversold signal. However, even if the Stochastic Oscillator has reached 80 securities can continue to rise. Similarly even after it has reached 20 it can continue to fall.
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The Haurlan Index is an overbought / oversold indicator. It was developed in the 1960s by Peter N. Haurlan. It has three components - long term, intermediate term, and short term.
1) Short Term. A 3-day EMA is taken of the net NYSE advances over declines, measuring the short term condition of the market. If this index exceeds +100, it generates a market short term buy signal. When the market drops below -150 the signal stops to be in effect. When the index moves above +100 the sell signal is not in effect anymore.
2) Intermediate Term is considered the most important of the three indexes. It is the same as short term but it has a 20-day exponential moving average. Market buys and sells are determined in this index by the crossing of trend lines or support/resistance levels depending on the particular market in question. For example, a resistance level may be set up when the market is basing out in preparation for an uptrend. Once its value is defined, it generates buy and sell signals.
3) Long Term is useful for determining trends but not for signals. It is the same as intermediate term except for a 200-day exponential moving average.
The intermediate component is necessary to corroborate breaks of resistance and support. After it was confirmed, buy and sell signals are generated. To determine the primary trend in price the long term component is used.
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The Herrick Payoff Index uses analyzing of volume, price changes, and open interest changes to determine the amount of money flowing into or out of a futures contract.
When the Index is below zero it shows that money is flowing out of the futures contract and vice versa.
To combine the value of each new day with the value of the previous day a multiplying factor is used. So the value at the beginning of the data series is zero. The increase and decrease of the value depends on changes in the number of open contracts, the average price for each day, changes in the average price and the amount regulated by the trading volume.
A divergence from the price is the primary signal to watch for. If the indicator is decreasing and prices are increasing, they will usually correct to confirm the indicator.
Herrick Payoff Index is useful for the early spotting of changes in price trend direction. So we can use the Payoff Index to distinguish trends that will most likely be short-lived from those that are destined to continue.
The index can also give coincident signals about a significant change in price trend a day or two before it occurs. This advance action is accomplished through use of trading volume and contract open interest to modify the price action. According to some analysys volume trends often change before a price-trend changeThe relationships between the price trend and the trend of open interest is also possible.
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It's impossible to precisely foresee the future but if you know the past behavior you can use it as a guide for right decisions of what is likely to happen next. With this idea in mind, Historical Volatility calculates the variance of fluctuations in a security over time.
Usually dealers begin to look at inconstancy over a long time, 10 years as minimum. It lets identify short-term fluctuations from ordinary activity. It's also important not to miss short-term volatility. If a commodity has averaged 20% volatility over the last year but only 10% over the past thirty days, it might be wise to adjust the volatility estimates to accommodate the latter data.
Historical inconstancy is determined by Sheldon Natenberg, as the normal fluctuation of the logarithmic price movements calculated at regular intervals of time.
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Ichimoku Kinko Hyo is translated from Japanese as "Chart Equilibrium at a glance. It is a charting technique created by Goichi Hosod, a Japanese journalist, who took the nick-name of "Ichimoku Sanjin" before the World War II.
Ichimoku Kinko lets indicate in which direction the market is moving, its entry and exit points. It is used for determining of a market trend, support and resistance levels and for creating sale and purchase signals.
The main terms of this technique are:
Kijun-sen demonstrates the average value of the price for the second period of time. Kijun-sen is a fluctuations' parameter in the Forex market. The price can grow if it's higher than the Kijun-sen. When the price crosses this line, movements in the trend are predicted. Another variant of the Kijun-sen usage is the signals' submission of. Kijun Sen resembles the Tenkan Sen but consists of more than 26 periods. (Brown)
Tenkan-sen demonstrates the average value of the price for the first period of time; defined as the sum of a maximum and the minimum for this time frame, divided by two. The purchase signal is provided when the line Tenkan-sen intersects Kijun-sen bottom-up and a sell signal is generated when the Tenkan-sen crosses Kijun-sen top-down. Tenkan-sen is used as the indicator of a Forex trend. The trend exists if this line grows or falls. When it moves horizontally, the Forex market has come into the channel. Tenkan Sen is an average of the highest high and lowest low over 9 periods. (Red) There is a signal for selling when Tenkan-sen line crosses Kijun-sen from bottom-up, the purchase signal is provided, if it moves from top to down.
Tenkan-sen is used as the indicator of a market trend. If this line grows or falls - the trend exists. When it goes horizontally - the market has entered in the channel.
Senkou Span is a shaded region between the 2 Senkou lines.
Senkou Span A - demonstrates the middle between the previous 2 lines, moved forward on value of the second time frame. Senkou Span B - demonstrates the average value of the price for the third time frame, moved forward on value of the second time frame. The area between them depicts the trend and is also used as the price's support and resistance. This leads the actual time by 26 periods. (Green/Blue shaded area) Chinkou Span demonstrates the actual candle's closing price, moved back on value of the second time frame.
A cloud is the distance between the lines, Senkou, is shaded on the schedule with other color. The market is considered without a trend and the edges of a cloud will derivate levels of support and resistance if the price is placed between these lines. If the line, Chinkou Span, crosses the chart of the price from bottom upwards, it is a signal for purchasing. And it is a signal for selling if it crosses from top downwards. Chikou Sen: the lagging price, 26 periods ago. (Pink)
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The indicator of Inertia is taken from the physics realm. It describes the phenomena of continuous motion of the body until an outside force acts upon it. The momentum of a stock that is based upon its volatility is measured by the Inertia here. Inertia is a smoothed RVI, as an outgrowth of Donald Dorsey's Relative Volatility Index. It was the September 1995 issue of Technical Analysis of Stocks and Commodities where Dorsey introduced the idea of Inertia.
The basic usage of the Inertia indicator is measuring a momentum of a currency trading price based on its volatility. Inertia is a smoothed RVI, as an outgrowth of Relative Volatility Index.
A scale that Inertia is measured on is from 0 to 100. If the indicator is below 50 the Inertia is seen to be negative. Positive Inertia is supposed to have the indicator above 50. Positive inertia signs show a long-term upward trend whether long-term downtrends are indicated by negative Inertia.
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A combination of the Relative Strength Index and Candlestick Analysis gives the Intraday Momentum Index, that was developed by Tushar Chande.
The IMI calculation is similar to RSI, but intraday opening and closing prices relationships are used here in order to find out if the day is up or down. An up day means that the close is higher than the open. It is signified by white candlesticks. A down day means that the close is lower than the open and it is signified by black candlesticks.
As well as RSI, the index rise over 70 indicates overbought conditions, that mean lower prices in future. Index values lower than 30 mean a possibility of oversold situation that is followed by higher prices. You should estimate the forex market trendiness using all overbought/oversold indicators before taking any actions on an signals.
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Kagi Charts, as well as Renko Charts and candlesticks, were invented in Japan and came to the USA to become popular due to Steve Nison. Kagi charts correspond a number of vertical lines tied to each other. The price action is shown by the thickness and direction of the lines. The closing prices, moving towards the previous vertical Kagi line, expand it. If the pre-determined "reversal amount" reverses the closing price, an opposite-directed Kagi line appears in the following column. The thickness of the Kagi line changes when closing prices modify previous column to make it higher or lower. That is one of the interesting aspects of Kagi Charts.
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The Kairi indicator indicates the percentage difference between the current closing value and its simple moving average. You can use this indicator either as a trend indicator or as anoverbought/oversold signal.
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Keltner Channel is an indicator that uses the "envelope theory" operating high and low ranges. Keltner Channel is based on volatility. The general category of envelopes includes all kinds of moving average bands and channels. A middle line and two outer lines are the parts of envelopes. The principle of the theory states that the price falls generally within the envelope.
The price crossing the boundaries of the envelope is a trading opportunity, but still it is considered as an anomaly. Speaking about Keltner Channels, the price moving over any outer bands is usually followed by an expected reaction towards the opposite one. Overbought is seen when the price comes closer to the upper band, whether oversold is shown by the price approaching to the lower band.
Three lines are included in the Keltner Channel. There are two bands and an Exponental Moving Average ("EMA"), generally 20-day EMA, that is traced around by these bands. The price floating towards either of the bands often turns to be a sell or buy signal.
KC Middle = MA(Price, n, Type),
KC Upper = KC Middle + MA(TR, n, Type) * Dev,
KC Lower = KC Middle - MA(TR, n, Type) * Dev,
where
Price – the price in the current period (Close, Open, etc),
TR - True Range
Dev - deviation factor
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The sense of the Klinger Histogram is to align the Klinger Volume Oscillator reference line to zero. It was developed in assistance to short- and long-term analysis. Klinger Oscillator is named after its inventor Stephen J. Klinger and it estimates volume-based money flows directions. There are three types of information that Klinger Oscillator deals with, they are: the range of price varying high and low, accumulation or distribution and volume. The criteria of movement is price range and volume is a force that affects movement. When the sum of today's high, low and close exceeds the sum of the previous day it's considered as accumulation.
When the sum of the day gets lower than yesterday's one it appears to be a distribution. The trend maintenance is seen when both sums are at the same level. Volume shows buying and selling enforcement. It reflects prolonged price changing within the day as well. The range of the shares amount going through accumulation and distribution processes each day as "volume force" is measured by the Klinger Oscillator. A volume force increase usually attends an uptrend. After that it contracts progressively over the period of late uptrend stages and first downtrend phases. Volume force usually rises gradually after that and it characterizes accumulation process preceding the development of the bottom.
An oscillator shows the average that is moving exponentially in the range from 34-period and 55-period having a 13-period trigger. Volume force conversion into an oscillator helps to trace it into and out of security. The divergences existing at tops and bottoms can be found out by confronting the force to price action. The KO can be not as effective when used with the timing trades going a direction opposite to the trend as with those following the trend direction. Still, when the oscillator differs from the price action that is implied, the trend momentum may be lost and the trend can come closer to end.
The most dramatic indicator according to Klinger turns up when the difference from the implied price action and KO occurs on new highs or new lows in the area of overbought or oversold. The trend losing momentum and coming to an end can be seen when the stock reaches a new high or low and the KO doesn't show the same. You should buy when the Klinger Oscillator takes unusually low values below zero then goes up over the trigger line during the period of price being in an uptrend, that means price is higher than 89-day exponential moving average. You should sell when the Klinger Oscillator takes extremely high values and then goes lower through the trigger line during a downtrend that means the price which is lower than an 89-day exponential moving average.
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Linear Regression Channel 50% and 100%
The idea of the Linear Regression Channel 50% is close to the Linear Regression Channel but the upper and lower lines are drawn at the distance of one, not of two, standard deviation from the Linear Regression line.
By drawing two parallel lines over and under the Linear Regression line we obtain a Linear Regression Channel 100%.
At the distance of two standard deviations over and under the Linear Regression line Parallel and equidistant lines are traced. The channel lines are located much farther from the Regression line than any of the closing prices. As far as the Regression channel is a channel for price fluctuations, the top border line shows resistance whether the bottom channel line shows support. Price values can fall out of the channel for a while but if the price stays out of the channel for a prolonged period of time the trend may reverse.
Unlike Linear Regression trendline whose purpose is to show the equilibrium price Linear Regression Channels are the indicators of possible price fluctuations from the trendline.
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The basis of the Linear Regression Indicator is a price trend docked into a certain period. The method of linear regress calculation is the least squares. The least square lets drawing a trendline in the way that the root-mean-square divergence (axis Y) of the trend points from the n price chart points is set to minimum in the certain period.
A trendline drawn with the linear regress always finishes with the LRI indicator point. Though LRI indicatorresembles moving average, it has some pluses. Unlike moving average, LRI has a lower axis X latency and therefore is more reactive to price movement.
Generally LRI predicts the price for future periods according to the present price and taking into consideration past price trends. The calculation of the LRI indicator goes on the following way: a linear regression line is drawn through the defined period values and shows the current figures. A linear regression line always comes as close as possible to the defined values and corresponds a straight line.
It is impossible to set the beginning of a data series LRI while the defined period is not filled with the data.
It is similar to the Time Series Moving Average and a zero offset Time Series Forecast.
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The usage of Linear Regression slope is prediction of the following forex market values based on the previous ones. It is considered as a statistical engine. The linear Regression is usually drawn as a straight line, similar to a trend line on a price chart. Still the linear regression indicator does not correspond a straight line following the price fluctuations while being traced.
Each end point of an imaginary linear regression trend line makes up a path for this curve. All these imaginary trend lines are placed at nearest distance (length) to the closing prices through 'least squares' method applied to the input set bars.
It helps to find out the possible values of the forex market's prices in the predicted future according to recent and present data. If a price trend rises or descends, the linear regression suggests the possible angle of an uptrend/downtrend basing on the current price. It is thought that if the price differs from the linear regression line, it gets too strained and starts motion in direction to the line. Thereby this monitor allows us to understand the moment of price trend change.
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A Linear Regression Trendline is one of the most important forex technical indicators. In the charts it is a straight line plotted through past prices of a given security via the least squares method.
If you will extend the resulting line you can use it to predict future price trends. Remember there still can be significant shifts as prices will continue to fluctuate above and below the line.
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Market Facilitation Index (BW MFI)
The Market Facilitation Index, developed by Dr. Bill Williams, reproduces volume and price characteristics in order to make the trade more accurate. 1 point price changing can be shown by BW MFI (Bill Williams Market Facilitation Index). You shouldn't care about absolute indicator values, whether its changes are important. Bill Williams singles out following processes of MFI and volume changing:
Both MFI and volume go up. It means that more players are joining the market (volume increases), these players make bar development possible. It's followed by movement commencing and taking higher speed.
Both MFI and volume go down. In this case the participants have lost their interest.
MFI rises while volume gets lower. This situation describes lack of ability for market to support the volume from customers. In this case the price varies according to the speculations of traders, brokers or dealers.
MFI decreases while volume rises. This situation is called the battle between bulls and bears. In this case the volumes being bought or sold are considerable whether the price doesn't change much as far as the affecting forces are approximately at the same level. It is inevitable that either bulls or bears will win. In most cases the end of this process lets you see whether the trend is going on or it is about to change. According to Bill Williams it is called "curtsying".
The calculation for the MFI is:
[High] - [Low] / Volume
Otherwise a "Fake" is considered to occur when the volume gets lower whether MFI increases. It's called like this as far as there is no basis for trend changing apart from rising floor activity. Finally the price reverses.
The process of both MFI and volume falling is called a "Fade". In this case the market is not interested and it causes a fade. The price trend is supposed to reverse.
The situation when the volume is high unlike the MFI which is low is called "Squat". This can be compared to a sprinter crouching before the race start. Further changes are proved future trends.
In case both volume and MFI are up it is called "Green" and it gives a reliable indication of following the trend.
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Donald Dorsey has developed the Mass Index in order to catch the trend reversal points. The daily prices movements are used for this purpose. In case the movement is considerable the Mass Index goes up, otherwise if it is slight the Mass Index goes down.
It is important to keep an eye on "reversal bulge" that appears when the Mass Index exceeds 27 and then reduces lower than 26.5 on a 25-period chart.
In order to find out whether the reversal bulge gives buy or sell signal a 9-period Exponential Moving Average of prices is used. You should buy when the moving average decreases (as reversal anticipation) and sell while it rises in case a reversal bulge takes place.
The Mass Index calculates various values, even the exponential averages of the ranges, using a number of bars. After that it works out the indexes and traces the results. Mass Index shows the direction in trending markets and forecasts possible direction changes of forex market.
The Mass Index line rising over the setup line and getting lower than the trigger line afterwards indicates a possibility of price reversing, which is called "a reversal bulge". It's impossible to find out the direction of the trend through the Mass Index but it shows potential reversals successfully.
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A spread between the quantity of issues being advanced and declined on the New York Stock Exchange are smoothed and form the basis of the McClellan Oscillator that was developed by Sherman and Marian McClellan and is an indicator of market breadth. This is one of the "breadth" indicators which use the issues being advanced or declined in order to set the extent of the involvement in the stock and currency markets fluctuations.
As well as MACD, the McClellan Oscillator finds out the extent of the involvement in the stock market fluctuations through declines and advances. A big amount of stocks rising temperately is an indicator of a stable bull market. If a price of low amount of stocks rises considerably then the bull markets fall back. The end of bull market is shown by the type of divergence that gives wrong impression of market health.
The range of Oscillator movement is mostly from -100 to +100. The Oscillator activities at the area from +70 to +100 followed by its decrease signals an overbought situation and possibility to sell. The oscillator values situated from -70 to -100 followed by the growth is a common buy signal caused by oversold. The oscillator being at the area from +70 to +100 which is an overbought area and then falling gives a sell signal.
An extreme overbought or oversold can be seen in case the Oscillator gets the values over +100 or above -100 and it shows the trend development in the same direction. For instance, after the oscillator falling till -90 and then rising a buy signal occurs whether the oscillator being lower than -100 keeps the lower trend within two or three following weeks. It's better to perform buying after a number of oscillator's uptrends from the low values or market strength recovery. The oscillator going through zero line upwards or downwards indicates buy or sell signals for a medium term accordingly.
The way of the McClellan Oscillator calculation is capturing the 10% (approximately 19-day) and 5% (approximately 39-day) Exponential Moving Averages difference of issues being advanced and subtracting the declining ones.
(10% EMA Advances - Declines) - (5% EMA Advances - Declines)
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The Median Price function measures the middle point between the daily low and high prices. It can also mentioned in connection with the average or mean price.
The median price depicts a simple picture of the currency daily trading prices. It is sometimes used for smoothing out the inconstancy of the closing price as it contains data on the whole trading day and not only on the day's end.
The Median Price indicator is just the middle point of every day's price. The Typical Price and Weighted Close are the same indicators. The Median Price indicator provides a single-line chart of the day's "average price". This average price can be helpful if one seeks a simpler prices view.
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The MESA Sine Wave utilizes 2 sine plots to depict if the market is in a trend mode or in a cycle mode. They call it a trend mode if the plots start to wander the market. The market is in the cycling mode if the 2 plots look like a Sine wave the market. In a trend mode the Sine and Lead Sine plots typically weaken in a sideways pattern around the zero-point, running distant and parallel from each other. The MESA Sine Wave was created by John Elhers.
MESA Sine Wave indicator is that it will anticipate cycle mode turning points rather than waiting for confirmation (as the majority of oscillators do). It's an extremely helpful trait. The indicator also has an extra-advantage that trend mode whipsaw signals are minimized.
The indicator contains 2 plots - one line depicting the Sine of the calculated phase angle over time and the other the Sine of the phase angle advanced by 45 degrees - the Lead Sine. The crossings of the Sine and Lead Sine together provide precise and advanced picture of cycle mode turning points.
If the Sine plot crosses below the Lead Sine plot the sell signal is sent. A purchase signal is sent as the Sine plot crosses over the Lead Sine plot if the market is in cycle mode. It's worth trading the trend if the market is in the trend mode. Main moving average crossovers are often helpful for exiting and entering positions in this type of market.
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MMA (The Modified Moving Average) is an algebraic tool which makes averages more amenable to price shifts. This average comprises a sloping factor to help it overtake with the growing or declining value of the trading price of the currency.
Altered shifting averages resemble simple moving averages. The first point of the modified moving average is calculated precisely as the first point of the simple moving average is calculated. However, all following points are measured by adding the new price and afterwards subtracting from the resulting sum the last average. MMA is the difference, the new point on the scheme.
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The Momentum indicator calculates the value of the commodity price shifts during a definite period of time.
The main ways of using this indicator are the following:
Momentum is used as a leading indicator. This tool uses the notion that as a rule the last phase of upward tendency is followed by absolute price increase because everyone is sure that it'll go on. In its turn, the closing of the bears' market is usually followed by absolute decrease in prices because everyone seeks after leaving the market. This is a rather usual situation in the market but it's important to understand that still it is quite a general conclusion.
Like MACD, Momentum is used as an oscillator following the tendency. In this situation of usage, if the indicator makes trough and begins to grow, the signal to purchase is sent; if it comes up to its high and turns downwards the signal to sell is sent. It is worth using its short moving average to determine the indicator's turning points.
Momentum calculates the currency's rate-of-change, being a leading indicator. An oscillator that shifts above and below 100 is formed by the current plot. Bearish and bullish interpretations are found by seeking discrepancies, extreme readings and centerline crossovers.
The momentum can be of either positive or negative values. The prices fall if the current price of closing is less than the price of closing of days back so. Negative values of momentum mean that the current price of closing is higher than the price of closing or days back, and that's why the prices grow if Momentum is of the positive value.
The absolute value of Momentum characterizes the velocity of movement of the prices; the large absolute value of Momentum means fast movement of the prices.
About a zero point the chart of the Momentum shifts. If the chart crosses the zero line, it means changing of direction of shift, which means that the market has lost the moment of movement. The price still can grow, when the Moment already will reach the zero point. After crossing a zero line, the movement below zero is signal to sale, above zero - means a signal to purchase,.
A definite investing or trading style is also characterized by Momentum. The rational is that the hot get hotter and the cold get colder. Bullish momentum players purchase currency pairs or commodities that are popular or that they think are going to be popular. At last, popularity grows, the advance will quicken. Price acceleration resembles an increase in momentum.
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Momentum percent resembles Momentum very much. The difference is Momentum % is a measure of the day as a percentage of the maximum Momentum. And not the difference between current price and the one of n-days prior.
So:
if Pt today's price and Pt-n the price n days ago, Momentum is calculated as:
MOt = Pt - Pt-n
So if you define MOmax the highest absolute value of the momentum, the Momentum Percent % is:
MO%t = MOt / MOmax
To interpret Momentum % you can in the same way as Momentum - sell if it's the reverse and buy if Momentum % shifts from negative to positive.
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Money Flow values can be used as part of the Money Flow Index equation or as an independent calculation. The Money Flow indicator demonstrates the cash outflows and inflows in regards to a definite stock.
The equation for Money Flow calculation is simply:
Money Flow = (Typical Price) * (Volume)
Where Typical Price is defined as: (High + Low + Close) / 3
While a stock's price just provides a snapshot in time, Money Flow can identify if the market may be discounting some future, important event.
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The MF (Money Flow Index) compares the value traded on up-days to value traded on down-days and anticipates trend weakness and any points of reverse shift. It is a volume-weighted variant of the Relative Strength Index.
1) Measure Money Flow for every time period:
Typical Price * Volume
2) Measure Typical Price for every time period:
(High + Low + Close) / 3
Make decision on the time period over which to measure the index which should be based on the cycle that you are trading.
3) Measure Negative Money Flow: Add Money Flow for every period (in the time period) that Typical Price shifts down.
4) Measure Positive Money Flow: Add Money Flow for every period (in the time period) that Typical Price shifts up.
5) Measure the Money Flow Index: 100 - 100 / (1+ Money Ratio)
6) Measure the Money Ratio: Negative Money Flow / Positive Money Flow
That's why Money Flow Index (MFI) is an indicator which depicts the intensity the money is invested in a commodity or withdrawn from it. Forming and interpreting this indicator resemble those of RSI; the distinction is that the MFI also refers to volume.
It's important to remember while analyzing the MFI: discrepancies between indicator and price shift. If prices grow and MFI decreases, the chance of price turning is very high. MFI values over 80 and below 20 means respectively about the market foundation or potential high.
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The MA indicator (Moving Average indicator) is one of the oldest technical modern indicators and the most often used indicator in technical analysis.
A moving average is an average of a shifting body of data, as seen from its name. For example, a 10-day moving average is got by adding closing prices for the last 10 periods being measured and dividing by 10. The term "moving" is used as only the last 10 days are used in the measurement. That's why the data body is averaged shifted forward with every next trading day.
The moving average line will be placed directly in the price shifting chart. The moving average is measured with a definite predefined period. The sensibility of the moving average is weaker if the period is longer. The probability of false signals is higher if the period is shorter.
On the whole, the moving average is a smoothing tool. Low and high prices are obscured and the basic trend of the market is more precisely seen by averaging the price information. But by its very nature the moving average line is behind the market action. A shorter period moving average (3-5 days) would hug the price action more closely than a 40-day moving average. Shorter term moving averages are more influenced by everyday shifts.
Moving Average demonstrates the average value of a security's price in a time frame. The average price shifts up or down when the security's price shifts.
There are 5 popular types of moving averages: simple (or arithmetic), variable exponential, weighted and triangular. You can measure moving averages on any data series comprising a security's open, volume, high, low, close or any other indicator. The basic distinction between MA variants is the weight which refers to the latest data.
Simple moving averages provide the same weight to all the prices. Triangular averages provide more weight to prices in the middle of the time period. Exponential and weighted averages provide more weight to recent prices.
To interpret a moving average usually you should just compare the links between a moving average of the security's price with the security's price itself. If the security's price rises above its moving average a purchase signal is generated. If the security's price shifts below its moving average a sell signal is generated.
In other words, the interpretation of an indicator's moving average is the same as the interpretation of a security's moving average. Once the indicator moves below its moving average, it means a long-lasting downward movement by the indicator, and if the indicator moves above its moving average, it means a long-lasting upward movement by the indicator.
The MACD, Price ROC, Momentum, and Stochastics are among the indicators which are best-suited for usage with moving average penetration systems. Some indicators, such as short-term Stochastics, change so erratically that it is difficult to see their real trend. If you want to see the basic trend of the indicator more than its everyday changes you can erase the indicator and then placing a moving average of the indicator.
By placing a short-term moving average (2-10 days) of oscillating indicators such as Stochatics, the 12-day ROC or the RSI whipsaws can be reduced, at the expense of slightly later signals. For instance, it's possible to sell only when a 5-period moving average of the Stochastic Oscillator moves below 80 rather than selling when the Stochastic Oscillator falls below 80.
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The sense of MACD, the most well-known indicator, is the basis of average values variety. The idea of the difference between two averages that are smoothed exponentially (EMA) was founded and put into practice by Jerald H. Appler.
MACD = MA(P, nlong) - MA(P, nshort),
MACD Signal = MA(MACD, n),
where MA(P, nlong) - moving average of the price P within nlong periods (usually 26),
MA(P, nshort) - moving average of the price P within nshort periods (usually 12),
MA(MACD, n) - moving average MACD within n periods (usually 9).
Thus, The Moving Average Convergence/Divergence (MACD) is calculated by subtracting the value of a 26-dayexponential moving average from the value of a 12-day exponential moving average.
The calculating of The Moving Average Convergence/Divergence (MACD) is carried out by subtracting a 12-day exponential moving average value from a 26-day exponential moving average value.
The MACD value existing at the beginning of a data series is supposed to be equal to zero. The starting values of MACD are thought to include zero as far as it is based on exponential moving averages. Under these circumstances it is possible to omit the values before the 26th value in case the longer moving average has not got any importance yet.
General usage of the MACD, a particular example of a Value Oscillator, is detecting price trends through forex market closing prices. In case of MACD growth the prices go up and they go down while MACD decreases. A 9-day exponential average against which the MACD is generally traded is its signal line. This value is generated by the MACD Signal Line function. MACD increasing over the signal line makes a signal to buy. MACD falling lower the signal line produces a signal to sell.
The curves are varying at the area near zero. Standard oscillator researching methods are used in MACD analyzing. The value crossing the line shows whether to buy or sell. The Divergence is described greatly by this indicator. Zero level crossing signalizes a possibility of trend changing. In case it is crossed up from below, it is a buy signal, otherwise if it is crossed downright it is a sell signal.
The process when a slower line is intersected by a faster one is not senseless either. In case the faster line crosses the slower one up from below it is a buy signal. If the situation is opposite and a slower line is intersected by a faster one downright it is a sell signal. The signal is developed in case of its confirmation, which is a continuing lines motioning in a parallel way towards and crossing the zero point. The basic trend confirmed by such signal is the most reliable and significant.
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The relationship of a 26-day and 12-day Exponential Moving Average are illustrated by MACD (2-lines). Furthermore, the "signal" or "trigger" line which is a 9-day Exponential Moving Average is traced on the summit indicating the opportunities to buy or sell:
There are three wide-spread ways of MACD usage. They are: crossovers, overbought/oversold conditions and divergences.
- Crossovers:
To buy in case the MACD gets lower than its signal line and to sell if MACD is higher is the basic rule of MACD trading. Another one is to buy or sell in case MACD gets higher or lower than zero.
- Overbought/Oversold Conditions:
Another usage of MACD is overbought or oversold indication. If the distance between shorter and longer moving averages gets very big while the MACD goes up it means that the security price is possibly dragged out and is about to come to its ordinary levels.
- Divergences:
In case MACD differs much from the price of a security it can be the sign of current trend end approaching. In case MACD is reaching lower levels and the prices don't follow it a bearish divergence arises. Otherwise, in case MACD reaches high peaks while the prices don't follow this trend a bullish divergence turns up. In case these trends appear at the levels close to overbought or oversold then the divergences are supposed to be considerable.
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MACD indicator signals have a possibility to be delayed after the price movements. The MACD Histogram tries to find a solution for this situation by indicating the MACD and its reference line, which is the 9-day Exponential Moving Average, divergence through drawing the reference line near zero. According to this,MACD Histogram is able to show price trend changing beforehand unlike the general MACD signal.
A histogram forms a signal to buy when it gets higher than zero point and a signal to sell when it gets lower than zero.
The MACD (Moving Average Convergence/Divergence), developed by Gerald Appel who was a Systems and Forecasts publisher, is a momentum indicator than follows the trend. It indicates two price moving averages interconnection. The MACD indicates the variety between a 26-day and 12-day exponential moving averages. A "signal" or "trigger" line corresponding a 9-day exponential moving average is placed on the MACD summit indication possibilities to sell or buy. According to Appel, moving averages are specified as percentages. According to this, he marks out 7.5%, 15%, and 20%.
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You can see on the chart in the form of two lines - the moving average displaced downwards - bottom line and upwards - top line. And Moving Average Envelope demonstrates a range of the prices' discrepancy from Moving Average.
The indicator consists of
three lines:
The top line:
Where K - percent from
the price on which moving average displaced upwards
The bottom line:
Where N - percent on which moving average displaced downwards.
Moving Average Envelopes consist of 2 moving averages which are calculated as simple, exponential, etc., one displaced upwards, and another - downwards for the certain percent - "an envelope factor". In some cases they also depict the 3rd line, the central moving average from which there is a displacement. For instance, 2 % envelope of moving averages will look as two lines, the first - moving average shifted on 2 % upwards, the second - on 2 % downwards.
It's known that the envelope determines borders - both bottom and top ones -- of normal movement of the prices of currency pair. There is a certain principle of using: after some changes the price usually returns to the basic trend -- which is central moving average. It's connected with that the more the price differs from the basic tendency, the more traders fix profit, returning the price in "a normal channel". There are more borders of strips to be chosen if the analyzed market is inconstant.
Envelopes' use several tools, such as:
1. You should use strips' break as identifiers of development of shift. In some cases Moving Average Envelopes are used as filters.
2. You should use the top line as a resistance line, and bottom - as a support line after careful selection of displacement's factor Tactics connected to it. Purchase at bottom and sale at the top line.
That's why when you purchase, for instance, when the price of currency at first has crossed moving average upwards, and then the top strip of an envelope.
Do the opposite when you sale. When at first the price has crossed moving average from top downwards, and then the bottom strip of an envelope. Such behavior makes less the chances of getting false signals. But if the present trend the right signal acts later, and the trader loses a part of trend shift, which is the same or more than an envelope's factor.
However, there are some lacks in this tool. For instance, Moving Average envelopes are late as well as any indicator built on the base of moving averages. Moving Average envelopes are not able to be provided under ongoing inconstancy as, let's, say Bollinger Bands.
Important: you should first test their work for the demonstration account or testing as trading strategy and then use any indicators on real accounts. Even the most efficient indicator when used incorrectly, provides a number of false signals and in the end during trade can cause great losses.
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Negative Volume Index is used together with thePositive Volume Index, it can identify bull markets. These indicators are created on the notion that smart money dominates trading on quiet days. From the other hand uninformed investors trade on active days. This index was first detailed by Norman Fosback in his 1976 book "Stock Market Logic".
The odds of a bull market are about 50/50 while the NVI is under its one-year average. Following this logic, the Negative Volume Index is most helpful as a bull market indicator. Fosback demonstrates that the bull market odds are 95 out of 100 when the NVI moves over its 1-year moving average.
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New Highs - Lows Cumulative is a long-term market momentum indicator defining the market's strength. It's calculated by finding the total cumulative distinction between new 52-week lows and new 52-week tops.
Interpretation of the New Highs-Lows Cumulative indicator is the same as of the Advance/Decline Line in that discrepancies happen if the indicator doesn't confirm the market index's low or top. Discrepancies in a down market demonstrate potential strength while discrepancies during an up market show potential weakness.
To confirm an ongoing trend use the New High-Low Cumulative. The most of the time the indicator shifts in the same direction as the major indices, when the indicator and the market shift in opposite directions a market reversal is forecasted. This happens because of the decreasing number of stocks taking part in the higher prices eventually yielding a reversal in the price trend.
This indicator's value at the start of the data series is zero.
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The NYHL measures the daily ratio between the number of stocks that approach new 52-week highs to the number that reach 52-week lows. The New Highs/Lows Ratio resembles the Advance/Decline Ratio and makes a useful oversold/overbought indicator for the market. Extremely high values sometimes mean that the market is becoming overbought. A sell-off which often follows, in its turn makes prices fall. In the same manner, very low values can mean that the market is becoming oversold.
It's usually worth using it as a confirmation for other indicators than just generating entry/exit signals as it demonstrates only on a portion of the activity in the broad market.
You should use broad market indicators for trading against broad market indices through mutual funds, options and futures. By adding confirmation or warning of upcoming trends they can also be used to increase the effectiveness of more specific signals.
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The New Highs-New Lows indicator tries to define the market's strength by displaying the daily distinction between the number of stocks reaching new 52-week highs and the number of stocks reaching new 52-week lows. Usually smoothed with a moving average to filter out everyday changes and show longer term trends, the indicator is used as an oscillator or discrepancy indicator.
As a rule, the New Highs-New Lows indicatorapproaches its extreme lows slightly before a major market bottom when used to show discrepancy. The indicator jumps up rapidly when the market turns up. And as it's easy to reach a new top when prices have been depressed - during this period a lot of new stocks reach new tops.
While cycles develop, a discrepancy happens as fewer and fewer stocks reach new tops and the indicator decreases. Still the market indices move on to reach new highs. It is a classic bearish discrepancy that demonstrates that the ongoing upward trend is weak and will soon reverse.
The indicator fluctuates around zero in most cases. When it is positive, the bulls are in control and when it is negative, the bears are in control. As it moves across zero trade on the indicator by selling and purchasing.
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The Norton High/Low Indicator is created to pick bottoms and highs on long-term price charts. It uses results from the Demand Index and the Stochastic study.
The NHP line the NLP lines are generated by it. The system also uses level lines at -2 and -3. The NLP line crossing -3 to the downside is the signal that a new bottom will happen in 4-6 periods, using daily, weekly, or monthly data.
In the same manner, the NHP line crossing -3 to the downside shows a new top in the same time frame. The indicator is more trustworthy if using longer term data - weekly or monthly. If indicator moves under the - 3 level, a reversal may be quite close. The reversal - "hook" - is the signal for entering the market.
To be on the safe side, use the Norton High/Low Indicator in conjunction with other studies for confirmation.
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If you measure the daily ranges between the low and the high you'll be able to calculate inconstancy. If the daily range is large it is high and when the daily range is little it is low. The Notis %V study contains 2 separate indicators. It divides market inconstancy into downward (DVLT) and upward (UVLT) parts. Both are places separately in the same window, and can be placed as an oscillator. The upward part is also compared to the total inconstancy (UVLT + DVLT) and expressed as a percentage; thus the name, %V.
Volatility can be a key to options trading. A right usage of market volatility can keep you away from the situations when your option still loses value even when the market shifts your way.
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The tool was invented by Joseph Granville in his 1963 book "New Key to Stock Market Profits". He wrote that volume will anticipate price. So On Balance Volume OBV indicator builds links between the volume and the price change accompanying the certain volume.
The mechanism of its work is not difficult. When the closing price of the ongoing bar is under that of the previous bar, the volume will be taken from the previous value of OBV. When the closing price of the ongoing bar is above that of the previous bar, the value of the volume of the ongoing bar is to be added to the previous value of OBV.
It's worth to use signals sent by OBV as confirming. Oscillators or tendency indicators are usually more important than these signals. However, OBV (as oscillators) proviedes a strong signal of turn at the discrepancy with the price. Besides, the increase of OBV up to a new top or its fall to the new bottom confirms the bulls' power or bears' power and sends respectively the decrease or increase signal.
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It is a market breadth indicator. For calculating the strength of the market the Open-10 TRIN function uses declining or advancing volume and declining or advancing issues.
Very low values may show that the market is becoming overbought and a sell-off should happen in the nearest future (which will result in the prices' decrease). In the same way, very high values can show an oversold market. Readings less than 0.90 are bullish. Readings more than 0.90 are bearish.
It's important to remember that the running totals have the same effect as taking a moving average of every parameter as the division by the length of every average cancels out. The ratio of advancing to declining issues is afterwards divided by the ratio of advancing to declining volume.
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OsMA (Moving Average of Oscillator, or Oscillator of Moving Average) is, in usually the distinction between the oscillator and the smoothing of oscillator. Then the signal line of MACD is used for smoothing and the basic line of MACD is used as an oscillator.
If OsMA stops decreasing and starts increasing it's the signal for buying. If OsMA ceases increasing and starts decreasing its' the signal for sale. The discrepancy of the price and OsMA is a trustworthy signal.
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The OB/OS defines the momentum of the market by measuring a moving average of the distinction between the declining and advancing issues. To measure the Overbought/Oversold indicator you should subtract the number of declining issues from the amount of advancing issues and take a 10-period moving average of gotten value.
Is not defined until the 10th sample as it uses a moving average the value at the start of a data series. Points over 200 are bearish and readings under -200 are usually bullish. A sell signal is sent if the indicator moves under +200 and a purchase signal is sent if the OB/OS indicator moves over -200.
The OB/OS indicator is also helpful for defining the market's momentum. If more stocks are decreasing in price a value below zero is generated. If more stocks are increasing in price (more advancing than declining) a value over zero is generated.
To handle broad market indicators in the most efficient way, use them for trading against broad market indices through futures, mutual funds and options.
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The Parabolic SAR (Stop and Reverse) is a system of defining the point of trend's turns; The Parabolic SAR (PSAR) indicator is based on the link between a Forex market's price and time. The basic goals of the Parabolic System is to make reverse orientation of trading positions when the ongoing trend turns. The indicator is called like that due to the fact that when charted, the pattern resembles a parabola or French curve.
The Parabolic SAR system should be used only when the market has the defined trend. When the trend is absent this system generates a lot of incorrect signals. Parabolic SAR is base on the following rule: to shift the levels of closing prices only in direction of opened position. If there is a long position opened before, it is possible to increase the level of closing prices, but not to decrease it. If the short position is opened, it is possible to decrease the level of closing prices.
The closing price level is measured like this (for short positions):
SARi = (Lowi-1 - SARi-1) * AF - SARi-1.
The closing price level is measured like this (for long positions):
SARi = (Highi-1 - SARi-1) * AF + SARi-1.
Herein Highi-1 - the highest value of the price in the previous period, Lowi-1 - the lowest value of the price in the previous period, SARi-1 - the value of SAR for the previous period.
AF - factor of acceleration; (step of closing price changing - Step). defines the speed of shifting the closing prices to the direction of opened position. This value depends on amount of new maximums from the moment of opening if long positions and amount of minimums form the moment of opening the short position. For the first period AF value is set to 0.02. It means that the closing price is being shifted on 2% from the distinction between the extremum point of the previous period and the current price of closing of position. The limiter value of AF is 0.2.
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The Percent Change indicator measures and places the net change, expressed in percent, between a bar's price, as specified by the input Price, and that price the amount of bars ago specified in the input Length. The default settings plot the percent change for the close of every bar compared to the preceding bar.
This indicator is a fast and simple method of watching price fluctuations on a bar-by-bar basis depicting price inconstancy. The indicator will be placed at once by the default settings in red when the Percent Change is negative and in dark green when thePercent Change is positive.
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The Percent of Resistance (PCR) is an oscillator. It compares a currency's closing price to its price range over a selected period.
Some ways to interpret Percent of Resistance indicator:
Buy when the indicator falls below a certain level (e.g. 20) and then rises above that level.
Sell when the indicator rises above a certain level (e.g. 80) and then falls below that level.
Look for divergences. Sometimes prices are showing a series of new highs however PCR is failing to surpass its previous highs.
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The Percent R indicator is also an overbought-oversold oscillator. It is efficiently used in jerky markets, it is locked in a sideways price pattern or trading range. It can also be used to show when to sell on rallies in bear markets or to purchase on bottoms in bull markets.
An overbought market is believed to happen when thePercent R line exceeds the sell zone line. On the contrary, an oversold market is believed to happen when the Percent R line is less than the buy zone line.
On the whole, this indicator can help you take advantage of shorter-term countertrend shifts which happen inside longer-term trends and demonstrate the best time to exit (enter) a definite Forex market.
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The PVO is the percentage distinction between 2 moving averages of volume. The indicator is measured like this:
PVO = ((Vol 12-day EMA - Vol 26-day EMA)/Vol 12-day EMA) x 100
As you see, the Percentage Volume Oscillator has a maximum value of +100, but no minimum value. The absolute value is not as essential as the direction or the crosses over and under the zero line. The PVO can be used to identify periods of contracting or expanding volume in 3 various ways:
Fluctuations in the PVO are completely separate from price fluctuations. As such, fluctuations in PVO are connected with price fluctuations to assess the degree purchasing or selling pressure. Advances combined with strength in the PVO would be considered strong. Should the PVO decline while a security's price fell, it demonstrates decreasing volume on the decline.
Like the PPO, the PVO fluctuates above and below the zero line. The shorter EMA of volume is greater than the longer EMA of volume if PVO is positive. The shorter EMA of volume is less than the longer EMA of volume if PVO is negative. A PVO higher than zero indicates that volume levels are generally above average and rather heavy. Volume levels are usually under average and light if the PVO is below zero.
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The Polarized Fractal Efficiency - PFE indicator - draws on Mandelbrot and fractal geometry to depict how pricing moves between 2 points during a definite time period. The more linear and efficient the price fluctuation, the shorter the distance the prices must move. the Polarized Fractal Efficiency indicator was created by Hans Hanula.
The PFE indicator is used for calculation of how trendy or overloaded the price action is. PFE < 0 - mean that the trend is down. PFE > 0 - indicate that the trend is up. The higher the reading the "trendier" and more efficient the upward movement. Readings around zero show jerky, less efficient shift and a balance between demand and supply.
A hooking pattern often happens right before an efficient period finishes when the PFE appears to have maxed out, turns in the contrary direction towards zero, and then makes one last attempt at max. efficiency.
Stay with the trade all the way to the other extreme, unless it slows around the zero line. If it slows around zero, exit the trade and wait for a new max. efficiency entry.Trades can be entered in the opposite direction, with a stop just beyond the extreme of the hook.
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"Index of positive volume" indicator (PVI) changes on the periods in which value of volume has increased in comparison with the previous period. In connection with that the rise in prices is connected to increase in volumes, PVI will usually change in a direction of ascending trend.
The Positive Volume Index by Norman Fosback acts as his Negative Volume Index. They both help identifying bull and bear markets.
Initial value of PVI:
PVI0 = 1.
If the volume of the current period is more than volume of the previous one, then
PVIi = PVIi-1 + (PVIi-1 * (Pi - Pi-1) / Pi-1),
where Pi - is the price of the current period, Pi-1 - is the price of the previous period.
If the volume of the current period is less than volume of the previous period, the value of PVI of the current period is set equal to the value of PVI for the previous period:
PVIi = PVIi-1.
In interpretation of PVI it is incorporated the following explanation. In days of revival of a stock exchange when the volume grows, it means that investors "who are not aware" are acting, who the follows the influence of a crowd. And on the contrary, in days when the volume is reduced, in the market professionals are working and make true money (smart money). Thus, the changes of values PVI shows working of nonprofessional investors of in the market. So Positive Volume Index makes the assumption that people who are not aware of the situation trade on active days.
The PVI pays attention to the days where the volume increased from the last day. The premise being that the "crowd" takes positions on days when volume grows.
Still it's important to remember that the PVI is not a contrarian indicator. Even though the PVI should demonstrate what the not-so-smart-money is doing, it is however moving in the same direction as prices are.
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The Price Action Indicator (PAIN) provides a lot of helpful information using only today's open, high, low and close. This pays a single value that is rather efficient, building ideal limit-up and limit-down scenarios in bond futures. The output has also demonstrated to be firm with the interpretation of "Japanese candlestick pattern". Using the formula:
[(C-O)+(C-H)+(C-L)] / 2
where:
(C-O) defines Intra-Day Momentum,
(C-L) defines Late Selling Pressure (LSP) and
(C-H) defines Late Buying Pressure (LBP)
This yields a single value that has proven itself by constructing ideal limit-up and limit-down scenarios in bond futures. The output has also shown to be consistent with the interpretation of Japanese candlestick patterns.
The stock's price is under selling pressure if the Close is near the Low. The stocks price is under purchasing pressure, or as they say the "Bulls are driving up the price" if the Close is near the High. And in the end, a high PAIN value with the Close near the High will be an excellent potential long if the overall market conditions stay fortunate.
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The Price and Volume Trend is an indicator close to On Balance Volume using a cumulative volume total suffered adjustment. The On Balance Volume works through taking a sum of all volume of the positively closing days and subtracting the compound volume of all the lower closing days, whether the PVT carries out these operations only with a part of the volume of the day.
PVT is thought to show the money flow going into and out of security better than OBV does because it calculates the volume to add through the prices increase or decline in accordance with closing price of the day before. The principle according to which OBV works is summing an equal volume with the indicator in case the closing price of the security is a fraction higher or double.
Otherwise, PVT is supposed to add a larger part of volume to the indicator in case of significant price changes and a smaller part if the changes are less considerable.
The Price and Volume Trend is calculated:
[ { (Close - Yesterday's Close) / Yesterday's Close } * Volume ] + Yesterday's PVT
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The Elliott Wave Theory identifies a repetitive pattern of 5 waves in the direction of the main trend. These waves are used to forecast the stock market shifts. The idea was given by the Dow Theory and by studies found throughout nature.
Price Channels were also used as a tool of arriving at price goals and to help confirm the finish of wave counts by Ralph Nelson Elliott.
A primary trend channel is built by depicting a main up trendline along the bottoms of waves 1 and 2 after an uptrend has been established. A parallel channel line is then depicted over the top of wave. The whole uptrend will often stay inside those 2 borders.
2 lines represented the Price Channel. It is based on measurement of min, and max. prices for the definite number of periods.
The following formulas serve as the basis for the lines of the price channel:
PC Lower = LL (n). It's the minimal value from the set of all Low prices (Lowest Low) within n periods.
PC Upper = HH (n). It's the maximal value from the set of all High prices (Highest High) within n periods
The changes depending on appearing of new max. and min. prices. The indicator's lines of are dynamic lines of support and resistance.
The lower trendline depicts support, the upper trendline depicts resistance. Price channels with downward slopes are bearish and channels with upward slopes are bullish.
If wave 3 starts to accelerate to the point that it is higher than the upper channel line, the lines are depicted again along the top of wave 1 and the bottom of wave 2. The last channel is depicted under the 2 corrective waves (2 and 4) and as a rule over the high. The upper line may have to be drawn over the top of wave if wave 3 is either unusually strong or an extended wave. The 5th wave should come close to the upper channel line before ending up. It's advisable that semilog charts be employed along with arithmetic charts for the depicting of channel lines on long-lasting trends.
It's worth selling (or short) when prices achieve basic trendline resistance in a bearish price channel and purchasing when prices achieve basic trendline support in a bullish price channel.
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The variation between security price moving averages gives the Price Oscillator. It can be expressed in percents as well as in points showing the difference between any averages unlike MACD that shows the variety in points through 12- and 26-day moving averages.
The PO Indicator is a difference between the moving averages, built on the basis of two periods:
PO = MA(P, n1) - MA(P, n2),
where
MA(P, n1) - moving average of the P price within n1 periods,
MA(P, n2) - moving average of theP price within n2 periods.
A buy signal is produced while analyzing moving average when either price or short-term moving average exceeds the longer-term one. The price or shorter-term moving average falling lower than the long-term moving average gives a sell signal. A single line of the Price Oscillator shows signals generated by the system for two moving averages going cyclically and making profitable signs. When the Price Oscillator takes values above zero, it is a signal to buy whether the values below zero give sell signal.
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The QStick indicator was introduced by Tushar Chande as candlesticks' quantifier. It is a moving average that shows the difference between the prices at which an issue opens and closes.
Any candlesticks charting agrees that the candlestick is black in case the period closes lower than it has opened and white when the closing price exceeds the opening one. A long appearing of white candlesticks is thought to show the bullish market whether a row of black ones describes the bearish.
Calculation: The QSticks simply builds a moving average for n-periods that would show the difference between close and open prices.
QStick = MA(n, (Close - Open)),
where n - is amount of periods for calculation of moving average.
You can simply use QStick as candles substitution. In case most of the candlesticks of the period are white then QStick takes positive values, whether dominating black candles turn QStick into negative values.
Negative figures of QStick indicate that most candlesticks during the researched period have been black that is caused by a bearish tendency of the security. Positive figures describe the bullish tendency when whit candlesticks prevail.
QStick can give lots of informative trading signals. Extremely low values of QStick along with reversal tendency give a buy signal. Qstick being at its summit and starting reduction is a sell signal. In case the figures of QStick differ much from prices, it is a sign to follow the Qstick direction to forecast price trend.
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Michael Poulos is an inventor of the Random Walk Index. His purpose was to develop an indicator that would have a better effect than fixed look-back period and any traditional smoothing techniques. The basis of RWI is a theory of the shortest path from one point to another. In case the prices stay too far from the line traced for a period, then the movement efficiency is considered to be minimal. Highly random movement creates considerably fluctuating RWI.
The number of periods, recommended by Poulos for effective RWI applying is from 2 to 7 for the short-term, whether the long-term requires from 8 to 64 periods. It is done to show the short-term fluctuations and long-term trends. RWI peaks in the short term indicate with the price highs, whether its bottoms describe prices decline.
Long-term analysis describes RWI peaks exceeding 1.0 as an indication of a reliable uptrend. Stable downtrends are shown by RWI taking low values over 1.0.
Long-term RWI values of highs is above zero and the long-term RWI of lows exceeds 1.0 as well, the trading system that uses RWI should expect close short (or enter long). Close long (or enter short) takes place when RWI of the lows is over 1.0 along with short-term RWI of highs exceeds 1.0.
RWI is the ratio of actual price trending to a random walk. In case the move exceeds the latter along with the present trend, the index is to exceed 1.0.
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DeMark on Day Trading Options, by T.R. DeMark and T.R. Demark, Jr., McGraw Hill, 1999 have described a market-timing oscillator, The DeMark Range Expansion Index.
This oscillator uses an arithmetical method of calculation that makes it free from any problems of exponential oscillators (e.g. MACD). The scale of the TD REI oscillator is from -100 to +100 where an overbought is indicated by the values 45 or higher and oversold - by the values -45 and lower.
Tom DeMark says that in order to calculate the Range Expansion Index, you should first sum all respective differences of high of the current day and the one that existed two days before along with the differences of lows, the one of the current day and the one that existed two days earlier. This would give you the value that would be positive or negative referring to the fact if the high and low of the current day are higher or lower than they used to be two days before. There are two more conditions to be fulfilled when the value of the certain day is positive or negative which are important to monitor in order to avoid taking premature buying or selling decisions.
1)The value of the two days' ago high must be higher or similar to the close price existed seven or eight days ago, or the high of the present day must exceed or be equal to the six-days' ago low.
2) The low of the two days before should be lower or at the same level than the close existed seven or eight days ago, or the low of the present day mustn't exceed (but can be equal to) the high of the five or six years earlier.
In case both conditions are met, then the sum of the differences between daily highs and lows is taken to determine the next day value. Next step is summing all positive and negative values within five days. This sum is later divided by the each day's (of the 5-day period) absolute value price movement. The possible values of the numerator are: positive or negative figures, or zero due to the fact that the value of each day get summed, whether the denominator can only be positive because deals with the price movement difference. The result is multiplied by 100 resulting into the value at the interval from -100 to +100.
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Jack Weinberg, the developer of the Range Indicator has grounded it on the fact he has noticed that general range of intraday changes from higher to lower in comparison with the general daily interday range taken from close to close can signalize the occur of a new trend as well as the present trend finishing.
The "out of balance" market is seen when the intraday fluctuations exceed interday ranges much and the Range indicators takes high values in this case. You should be careful and expect the trend finishing when this situation occurs. A new trend can be expected when the value of the Range Indicator is lower than 20.
Trend-following trading systems can be dealt with as well as various momentums are possible to be improved by using the Range Indicator. According to Weinberg, the data of basic two moving average crossover system can be more sufficient when the Range Indicator showings are taken into consideration. The increase both of the risk and the amount of transactions is seen when the Range Indicator exceeding the certain low value provokes the long position entering as well as its falling lower than the set high level causes the exit.
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The margin between the present price and the one that existed n-time periods ago is indicated by the oscillator called theRate of Change. ROC increases when the prices trend up whether it declines when they trend down. The scale of the prices changes calls the corresponding ROC change.
Overbought or oversold at the short- and long-term periods are perfectly shown by the 10-day ROC. The more security is supposed the higher the ROC is though the ROC decline shows the approaching rally. This indicator should be monitored during the trade in order to find out the start of the market changes. The current trend may go on in case the overbought or oversold indicators take dramatic values and the overbought market may keep its trend for a while as well.
Calculation:
The ROC (Rate of Change) Indicator is a difference between the price of the current period and the price of the previous period, which is located n periods back from the current one:
ROC = Pi - Pi-n,
Pi - the price of the current period,
Pi-n - the price of the period, which is located n periods back from the current one.
As usual, they use the relative (in percentage) value of the velocity of the ROC:
ROC% = 100% * (Pi - Pi-n) / Pi-n
A 10-day ROC tends to oscillate in a fairly regular cycle. Often, price changes can be anticipated by studying past cycles of the ROC and applying the predicted pattern to the current market.
To construct a 10 day rate of change oscillator, the latest closing price is divided by the close 10 days ago:
ROC = [ (Close-Close 10 periods ago) / (Close 10 periods ago) ] * 100
Taking into consideration the fact whether the As Percent parameter is chosen the Rate of Change can be equal either to the Change in Value function or to the Percent Change in Value function. Despite these variations, the function gives the information of the data volume changes that have happened during the certain period. The easier graphing of the Percent Rate of Change value is reached by its multiplying by 100.
The margin between the present price and the one that existed n-time periods ago is indicated by the Price Rate-of-Change. It's values can be represented in points as well as in percents. The same data, though incarnated as a ratio, is shown by the Momentum indicator.
The sinusoidal motion of the security prices first rising and then declining is a common fact. The bulls' and bears' resistance causes the expectations changes that are the reason for the wave-like pricing.
The ROC measures changes in prices amount during the certain time and represents it as an oscillator showing the cyclical movement. The ROC increases along with the prices uptrending and it decreases when the prices go down. High prices changing gives the according significant ROC changing.
Various periods of time are applied for the ROC calculation. They are from the daily volatile chart that is taken of 1 day to the long period lasting up to 200 days and even more. 12-day ROC as well as a 25-day one are the widest spread for trading at short and medium periods. Gerald Appel along with Fred Hitschler have offered these periods in their book, Stock Market Trading Systems.
Short- and medium-term oversold or overbought are perfectly shown by the 12-day ROC. The security is supposed to be highly overbought if the ROC is high, whether a rally is expected in case the ROC is low. Though waiting until the market turning up or down is not always the best way out as far as an overbought market keeps its trend for a while. Moreover, high overbought or oversold figures mostly show the present trend to keep its positions.
The back and forth cycles are quite common for the 12-day ROC. That's why the prices can be forecasted by analyzing recent cycle movements.
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Roger Altman introduced the Relative Momentum Indexas a sort of the Relative Strength Index (RSI) in Technical Analysis of Stocks & Commodities magazine of the February 1993. The Relative Momentum Index doesn't count up and down days from close to close as the RSI does, but it counts up and down days from the close relative to a close n-days ago (where n is not limited to 1 as required by the RSI).
Like in case of all overbought/oversold indicators, the RMIshows similar positive and negative sides. When the markets are in strong trend, the RMI will stay at overbought or oversold levels for a long period. Otherwise the RMI conduces to predictably fluctuate between an overbought level of 70 to 90 and an oversold level of 10 to 30. While the RSI differs from the price, the price will ultimately improve in the course of the index.
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Comparative Relative Strength parallels the price movement of a stock with an index, a sector or another stock to show how they are conducting to one another relatively. CRS is obtained by dividing one security's price by a base (or second) price of the security. This division's result is the proportion or relationship between the two securities.
The security is performing better than the second security while the indicators are moving up. The stock and security are coming up and down with the same percentage the sideways movement appears. On the contrary, when the indicators are moving down, the security isn't outperforming the base security.
You are advised to buy the best performer and sell the weaker one; this means the usage of the indicators to parallel a security's performance with a market index or to modify spreads.
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In June 1978 Welles Wilder's article introduced the Relative Strength Index (RSI), which is a widespread oscillator. Mr. Wilder's book, "New Concepts in Technical Trading Systems", also provided step-by-step instructions on counting and explaining the RSI. The name "Relative Strength Index" is slightly deceptive, because there is no comparison of the relative strength of two securities in the RSI, but rather the single security's domestic strength. "Internal Strength Index" might be a more suitable name. Two market indices, which are often known as Comparative Relative Strength, are compared by Relative strength scales.
When the RSI was introduced, Wilder advised to use a 14-day RSI, but the 9-day and 25-day RSIs were also popular. Moreover it is a chance to find the period that would be more suitable for you during the experiments with changing the number of time periods in the RSI calculation. (The unsteadiness of the indicator depends on the number of days was used to calculate the RSI - the indicator will be more inconstant, if it was used the fewer days.)
The RSI arranges between 0 and 100 and it is also named as a price-following oscillator. The best analysis of the RSI was found out: it is better to find a divergence in which a new high is being made by the security, but the RSI is going down to surpass its previous peak. This divergence means that soon the reversal will come. A "failure swing" completed, when the RSI turns down and decrease below its most recent low.
The fact that the failure swing happened proves the coming reversal. Mr. Wilder's described in his book five uses of the RSI in analyzing commodity charts. You could also use this method as the other security types.
Tops and Bottoms; Before the underlying price chart, the RSI surmounts above 70 and falls below 30 as usual. Chart Formations; chart patterns, such as head and shoulders (page 215) or triangles (page 216) that could or could not be evident on the price chart, are often formed by the RSI. Failure Swings (which is sometimes called support or resistance penetrations or breakouts); the RSI exceeds a previous peak (high) at this moment or falls below a recent trough (low).
Support and Resistance; sometimes more clearly than price themselves, levels of support and resistance are demonstrated by the RSI. Divergences; As it was described earlier, divergences happen when the price goes lower (or higher) and it isn't affirmed by a new high (or low) in the RSI. Prices usually reform and follow the RSI. It would be good to read the Mr. Wilder's book, where you could find additional information.
The RSI Indicator is a indicator of speed of changing of price. It is calculated in the following way:
RSI = 100 / (1 + D(P,n)/U(P,n)),
where U(P,n) - is a moving average of growing of the P price within n periods,
D(P,n) - is a moving average of falling of the P price within n periods.
There are all possible merits of the indicators situated in an area from 0 to 100. The two control levels (the higher bottom control level is above 70, the lower bottom control level is below 30) are put on the chart with the help of horizontal markers.
While the RSI increases and overcomes the top control level (above 70), the indicator displays the oversaturation of the market with buy trades, and then begins the zone of sales. Conversely, when the RSI crosses the low bottom control level (below 30), the indicator displays the oversaturation of the market with sell trades, and then starts the buying area.
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Donald Dorsey worked out the Relative Volatility Index(RVI), which is the RSI, only with the standard deviation over the past 10 days used instead of everyday price fluctuations. The RVI is usually used as a fixing indicator, because it measures in other way than price and it has the aim to interpret forex market strength.
It is usually used at the scale from 0 to 100 to find out the direction of volatility during the RVI's measurements. The volatility is more to the upside, when it is comes over the 50's mark on the scale. The direction of volatility is to the downside, when it falls lower than the 50's level on the scale.
Dorsey's first test showed that the RVI could be used as the RSI. But later Dorsey's test of the profitability of a basic moving average crossover system indicated that there could be improved by the application of a few rules:
· Only buy if RVI > 50.
· Only sell if RVI < 50.
· If you missed the buy at 50, buy long if RVI > 60.
· If you missed the sell at 40, sell short if RVI < 40.
· Close a long if RVI falls < 40.
· Close a short if RVI rises > 60.
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The Ribbon Study is the technical indicator, that illustrates several Moving Averages (10 day, 20 day, 30 day, etc.) in the selected period.
When the lines converge upon each other an opportunity appears as a change in direction of price should occur.
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The Linear Regression Trendline approximates real data's pointer could be well described by the R-Squared or R2 indicator. A perfect fit is observed, when an R-Squared is on 1.0 point. But when the R-Squared goes lower than 1.0 point, it means that there are no relationships between the price and the Linear Regression Trendline.
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Number of Periods |
R-Squared
Critical Value |
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5 |
0.77 |
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10 |
0.40 |
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14 |
0.27 |
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20 |
0.20 |
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25 |
0.16 |
|
30 |
0.13 |
|
50 |
0.08 |
|
60 |
0.06 |
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120 |
0.03 |
When R-Squared rounds off at extreme levels, a Short-term position could be considered opening opposite the prevailing trend. For example, a Short position could be regarded selling or opening, when the slope is positive and 0.80 point is overcame by R-squared then it starts to turn down.
You may find a lot of ways to use the linear regression outputs of R-squared and Slope in trading systems. If you need more information about the R- Squared, read it in the book The New Technical Trader written by Stanley Kroll and Tushar Chande.
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The development of Schaff Trend Cycle helped to meliorate on the speed and accuracy of the MACD in identifying trends. Crossing a MACD line (the difference between two exponential moving averages) through a reworked stochastic algorithm assists to calculate Schaff Trend Cycle. The cycles are usually discovered by it. The highs and lows at the frames of these "trend cycles" could be used to identify trends, and emphasize some trading opportunities- long within uptrends and short within downtrends. In sideways markets Schaff Trend Cycle is also used as the overbought/oversold indicator and this indicator usually has limits between 0 and 100.
The 25-line and 75-line mean "buy" and "sell" lines and they are expressed horizontally at 25 and 75.
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The calculation of the SMA (Simple Moving Average) goes the following way: the currency closing prices taken for some period of time are summed and divided by the amount of these periods. Generally speaking, the average price of the certain period is represented by SMA.
The volatility of the forex market is much more smoothed at the long periods of time due to the equal weight given for the daily price by SMA. Only the long-term trends bay me seen out of the long-term averages as far as any insignificant fluctuations get smoothed. For finding put short-term trends the short-term averages are taken, however they still give the long term expense.
The prices are mostly located close to the moving average but still aside from it. The moving average changes following the trend changes giving the additional data of the trend strength taking the slope steepness as its basis.
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The aim of the STO is to find out the current price position taking its range based on the period of bars into account. 14 most recent input Length bars are used by default settings, the input HighValue and LowValue (a range) is established by highs and lows of the given period, and the input CloseValue (current price) is set by the close.
Then follow the indexation, smoothing, and SlowK plotting of this calculation. The SlowD, which is SlowK's smoothed average, is traced as well. The values of SlowK and SlowD may vary (oscillate) from 0 to 100. The Stochastics direction follows the price movement, e.g. the increasing prices cause the Stochastics raise.
Non-confirming or divergent points can also be found out through Stochastics. E.g. a fake situation is observed when the Stochastics doesn't support the new price increase. Extremely high or low values of Stochastic may also be an indicator of an overbought or oversold market, while an opposite sign is given when the SlowD is crossed by the SlowK.
Both Slow Stochastic and a five-day moving average of a 12-day interval chart the stochastic. The accuracy of the indicators and volatility reduction are tried to be reached by the Stochastic Oscillator smoothing.
The obvious signals of the stochastic are oversold situation at values over 80 and overbought one with values lower than 20.
The mild trend having bias that are slightly up or down as well as broad trading ranges are best for applying Stochastics. The market trending persistently with only minor corrections is the worst for the stochastics usage. The stochastics give an opportunity to enter the trade at the period when the reaction for the trend signal weakens (which is shown by stochastic crossing taking place at any level.) and ignore any oversold or overbought signals that means trading by trend.
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Speed Resistance Lines - are a figure for which it is difficult to define the general rules by quantity of maxima, minima, to the purposes of movement, etc. Therefore it is usually allocated separately.
Speed Resistance Lines is the consecutive whiten trend movement which corrections pass under different corners from an index point of trend movements.
At construction of Speed
Resistance Lines the
following rule is used.
1) The minimum of a trend and the reached maximum of a trend are the reference
point.
2) The line which shares on pieces 2/3, 1/2 and 1/3 is drawn. Speed Resistance
Lines are drawn through these points. Break of line's thirds is considered a
strong signal on sale.
Usually after break the first line as supports, there is a fast achievement of a following line, and the first becomes already resistance of movement. When the second line is broken, it also becomes resistance, and support becomes the third. Break of line's thirds allows to speak that the current ascending trend is broken, and the signal on sale is given.
Thus, the prices for some time become "locked" between two lines.
Usually it is considered, that break of the third beam is a signal on purchase at a turn of an ascending trend or a signal on sale at a turn of a descending trend.
The situation with a descending trend will be mirror-like.
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Standard Deviation measures volatility statistically. It shows the difference of the values from the average one. The volatility as well as the standard deviation gets higher if the closing prices and average closing prices differ considerably. If the difference is insignificant the standard deviation and the volatility are low.
The reversals of trends such as bottoms or tops of the market are timed by high volatility levels. The new trends of prices growth after some recessive period are sometimes timed by low volatility levels.
The square root taken from the variance which is the average from mean squared deviations forms the Standard Deviation calculation.
The considerable change of the data under analysis, such as indicator or prices, gives High Standard Deviation values. Stable prices form low Standard Deviation values accordingly.
The most considerable tops are thought to go along with the significant volatility that occurs due to processes of fear and euphoria of investors. Considerable lows don't give much profit expectations, that's why they generally pass calmer.
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Two lines which are parallel to the Linear Regression Trendline correspond the Standard Deviation Channel. Their distance from LTR are x standard deviations.
Prices movement from tops to bottoms is objective. New highs are created when the optimism of the market participants increases. New lows become the result of the market participants' pessimism accordingly.
Markets are supposed to have the pricing point being equilibrium. The Standard Deviation Channel gives the sign of extremes falling in the same way as Linear Regression Trendline shows an equilibrium point.
The position of the point on the graph which is one standard deviation above and below the LRT falls in 67% cases according to statistics. Two standard deviations increase gives the 95% possibility for the data do decrease between these lines.
The situation when prices get higher or lower than any of these lines gives a forecast of its returning to the "channel" in case the general trend doesn't reverse.
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The distance between the price of a security and Linear Regression Trendline gives the basis to measure Standard Error. The trend is as strong, as close the price is to the Linear Regression Trendline. The higher the distance is, the weaker and less reliable trend is due to the high standard error.
High price volatility is indicated by high values of Standard Error. Trend modification is followed by an immediate standard error growth.
The combination of this indicator and the R-Squared is widely used. R-Squared decrease along with Standard Error generally forecast trend changes. The unusual values trending to a converging are the sign of change.
Still a downward movement from the top is not the only direction of the trend change as far as sideways fluctuations are supposed to be the change either.
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The basis of Standard Error Bands is standard error levels located higher or lower than Linear Regression Indicator. Standard Error Bands developed by Jon Anderson are the variation of envelope. That's why their outlook is close to Bollinger Bands though their calculation differs. The plotting of Bollinger Bands is made a standard deviation higher or lower than a moving average, whether the lines drawn below or above linear regression plot are Standard Error Bands.
The recommendations of Andersen are following values: the number of periods is "21", smoothing at a 3-day simple moving average, standard errors: "2". Another note is that unreliable results are made by taking short time frames.
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Standard Error of the security gives the ground for Standard Error Bands spacing. That's why the reliable trend can be seen when the distance between the bands is very tight. Wide fluctuations and price volatility is expected when the distance is big. The increasing distance after being small is the sign of the trend losing its strength and a possible reversal.
- Strong trend is indicated by tight bands.
- Wide distance between prices gives the freedom for prices fluctuations.
- Increasing distance between bands can be the sign of trend weakening and possible reversal.
- Prices follow the direction of the bands reversed after the lost trend.
- Standard Error Bands makes a good combination with the r-squared indicator. A reliable trend existence is confirmed by high r-squared value along with low bands' distance. A combination of low r-squared value and wide bands' distance shows the trend weakening.
Generally speaking, the trend and its volatility are attempted to be shown by Standard Error Bands. This indicator gets resulted in 3 plots. The linear regression line showing the 21-period ending value is the middle one.
Two standard errors added to the regression line's ending value result in the upper standard error band (the upper plot).
The subtraction of two standard errors from the linear regression line's end value creates the lower standard error band (the lower plot). Closing price may greatly influence the line values as well as error bands. That's why it's necessary to draw the three bar (period) simple moving average of the ending value of the regression line and the standard errors.
Standard Error Bands have much in common with Bollinger bands, though their interpretation differs. Trend directions along with its volatility are represented by Standard Error Bands whether the indication of Bollinger bands is average plotted price volatility.
One of the usage tactics of Standard Error Bands is monitoring the distance reduction at the moment of both upward and downward price movements. An easy price trend is supposed to occur in case this situation takes place. A strong trend keeps the bands at the close distance. The Linear Regression follows the increasing or decreasing trend direction. The price reduction is indicated by widening Bands. A trend completion may be signalized by the following Linear Regression decrease.
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Parallel lines drawn higher and lower from the Linear Regression Trendline form Standard Error Channels. The distance at which they are traced is a certain number of standard errors over or above the linear regression trendline.
The characteristic of the price fluctuations is its movement from one extreme to another and it depends on the traders' common opinion. Prices trend up in the optimistic market whether a pessimistic one causes prices reduction.
The prices are drawn to a certain equilibrium point existing for each issue. The location of such point can be found out by using the Linear Regression analysis whether Standard Error Channel analysis presents the data about the cyclic direction of the prices as well as the forecasts for possible trend changes.
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STIX is a short-term trading oscillator which helps to determine the momentum of the market. It compares the volume flowing into growing and falling stocks, as said in the Polymetric Report. The STIX indicator is measured using a variation of the Advance/Decline Ratio and gives a comparative percentage of growing stocks.
A/D Ratio = ( Advancing Issues / Advancing Issues-Declining Issues ) *100
STIX is then a 21-period (9%) exponential moving average of the above A/D Ratio:
STIX = (A/D Ratio * 0.09) + (yesterday's STIX * 0.91)
The STIX usually vibrates around 50. Values over 50 are generated when there have been more growing stocks than declining ones. Values under 50 are generated when more stocks have been declining in price.
>58: Extremely Overbought
>56: Fairly Overbought
< 45: Fairly Oversold
< 42: Extremely Oversold
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SMI was created by William Blau in January 1993 issue of Technical Analysis of Stocks & Commodities. The SMI demonstrates where the close is relative to the middle of the last high/low range, in comparison to the close relative to the recent low/high with the Stochastic Oscillator, which resembles theStochastic Momentum Index.
It's an oscillator that shifts between -100 and +100 and can be a bit less inconstant than an equal period Stochastic Oscillator. The oscillator consists of 2 lines - the moving average of the SMI (red) and the SMI (blue). The SMI will be negative if the close is less than the middle point of the range. The SMI will be positive if the close is greater than the middle point of the range.
The SMI interpretation is in fact the same as that of the Stochastic Oscillator. The most ordinary way of using it is to trade from is to sell when the SMI rises above +40 and then returns to the point under that level and to purchase at the moment when the SMI decreases under -40 and then shifts back above it. Another trading sign is to purchase when the SMI shifts above the moving average, and sell when the SMI decreases below the moving average.
Usually before basing any trades on strict oversold or overbought levels it is better to qualify the trendiness of the market using an indicator, for example, R-Squared. Levels should provide the most effective results if indicators provide a non-trending market trades based on strict oversold or overbought.
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The Stochastic Oscillator is an indicator of speed of changing or the Impulse of Price.
%E = 100 * (N - LLV(n)) / (HHV(n) - LLV(n)),
%D = MA(%K, s),
where N - is the price of closing of the current period,
LLV(n) - the lowest price within the last n periods,
HHV(n) - the highest price within the last n periods,
n - amount of periods (usually from 5 to 21),
s - amount of periods of calculation of the moving average.
It demonstrates the moments, when the price reaches the border of its trade diapason within predefined time period. It comprises 2 curve lines - the slow (%D) and the fast (%K).The Stochastic Oscillator also comprises 4 variables.
They are the following:
1) The number of time periods used in the stochastic calculation are called %K Periods.
2) The number of time periods used when calculating the moving average of %K are called %D Periods.
3) The interior smoothing of %K is being controlled by the value. A value of 3 is considered a slow stochastic. And a value of 1 is considered a fast stochastic.
4) %D Method helps to measure %D. It can be of different kinds - Simple, Exponential, Time Series, Weighted or Variable Triangular.
One method when trading using the Stochastic Oscillator is to sell when the either line rises above 80 and then falls back below. Vice versa, purchase when either %K or %D decreases below 20 and then again reaches that level. Another way of action is to watch timing trades and to sell when the %K line shifts below the %D line and purchase when the %K line shifts over the %D line.
Besides you should always follow the discrepancies. For instance, if prices start reaching new peaks and the Stochastic Oscillator fails to surpass its previous peaks, the indicator usually demonstrate in which direction prices are moving.
An interval from 0 up to 100conprises all the indicator's possible values. While building an indicator the two control levels are set on the chart where the top level is set at 80 and the low level is set on the 20. If it is crossed by STOCH lines demonstrate the oversell or overbuy situation in the market. The indicator demonstrates oversaturation with sell trades in the market, so the zone of purchases is started if STOCH lines shift below bottom control level. And the indicator demonstrates oversaturation with purchase trades in the market, so the zone of sales is started if the STOCH lines shifts over the top control level. As a rule, they use the following interpretation of the indicator:
- If the curve %K crosses the curve %D from below upward you should purchase.
- If the curve %K crosses a curve %D from top to downward you should sell.
- If oscillator - %K or %D - shifts below the line, and then again crosses the bottom level upwards you should purchase.
- If oscillator moves above the line, and then crosses the top level downwards you should sell.
- The presence of discrepancy is the situation when, for instance, the prices have reached new highs, and the values of oscillator turned out to be too weak for reaching new peak values.
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While the Stochastic Oscillator monitors links between closing prices and the range, the Stochastic RSI monitors the RSI values and their links over time. The Stochastic RSI is an Indicator of an Indicator, as seen from its name.
The Stochastic RSI oscillator is calculated:
[ (Today's RSI - Lowest RSI in %K periods) / (Highest RSI in %K periods - Lowest RSI in %K periods) ] *100
The Stochastic RSI as well as the Stochastic Oscillator, as a rule, is accompanied by a second line %D (an EMA of the Stochastic values). From this point the crossover events can be used to provide entry triggers (also as support to other indicators).
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STARC Bands comprise a channel surrounding a Simple Moving Average. Their creator is Manning Stoller. STARC (Stoller Average Range Channels) make a channel which surrounds an ordinary moving average. The width of the created channel differs depending on a period of the average range; thus the name ("ST" for Stoller, plus "ARC" for Average Range Channel).
STARC Bands, in the same fashion as Bollinger Bands, will tighten volatile markets and relax in unsteady markets. And still the STARC Bands are based on the average true range instead of being based on closes, and providing a more in-depth picture of Forex market unsteadiness. The Bollinger Band penetration sometimes indicate a continuation of a price change, and the STARC Bands determine lower and upper borders for ordinary price action.
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First of all, the Swing Index is used as a part of theAccumulation Swing Index because itself it creates an inconstant plot. The Swing Index compares the links between the ongoing prices - low, high open and close - and the previous period's prices to hold aside the "real" security's price.
The basic formula for the Swing Index is:
Swing Index = 50 * [ { Cy - C + 0.5(Cy - Oy) + 0.25(C - O) } / R ] * (K / T) Where:
C = Today's closing price
L = Today's lowest price
O = Today's opening price
Cy = Yesterday's closing price
Ly = Yesterday's lowest price
Oy = Yesterday's opening price
Hy = Yesterday's highest price
K = The larger of either (Hy - C) or (Ly - C)
R = A variable based on the relationship between today's closing price and yesterday's high and low
T = The limit move value
Wilder's book "New Concepts in Technical Trading Systems" provides precise instructions on measuring the Swing Index. The Swing Index indicator appoints a Swing Index value from 0 to 100 for an up bar and 0 to -100 for a down bar. It uses both the ongoing bars - High, Low, Open and Close and the latest bar's Open and Close to measure the Swing Index values. When a cross falls below 0 it demonstrates a fall in Forex market price. Vice versa, when the Swing Index crosses over 0, a short-term price raise is predicted. A smaller or larger swing index value shows the sternness of the Forex market's price's increase or decline.
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Time Series Forecast (TSF)
TSF, the Time Series Forecast indicator, consists of linear regression measurements using the Least Squares method. Linear regression is a statistical tool for forecasting future Forex market values comparing to past values. TSF tries to forecast the following Forex market value. For that purpose it defines the trend's upward or downward declivity and stretches those results into the future. For instance, when prices are moving upwards, TSF tries to define the upward declivity of the price compared to the ongoing price and stretch that calculation forward.
The trend is considered down when the Forex market price falls below the indicator, the Trend is considered up when the Forex market price rises over the indicator. Besides, a lot of analysts think that once prices shift above or fall below the indicator line; prices will likely move back to the line. The TSF indicator also defines if a change in direction happened monitoring the ongoing trend.
The Time Series Forecast indicator resembles the Linear Regression indicator with the exception of two important distinctions. One distinction is the default Length input value used for the TSF is much shorter because the plot line is stretched forward. Another distinction is that TSF plots its line forward, to the right of the chart, by the number of bars specified by the BarsPlus input. A larger Length input would not be as trustworthy as a shorter-term length while analyzing price activity and trends and would form a considerably exaggerated plot.
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Tom Demark (TD) Moving Average: the instrument for defining logical locations for placing stop loss orders or for exiting a trade- that's how its author Tom Demark describes his TD Moving Average study.
You should use the price level represented by the Moving Average to define a place to exit the long position or to place a stop loss on a trade if the Moving Average of lows goes into effect. You should use the price level represented by the Moving Average to spot a place to exit the short position or to place a stop loss on a trade if the Moving Average of highs goes into effect. The plot of the Moving Average can be used for a period of four bars or until the needed conditions are no longer in effect.
Remember that if the latest peak has reached a value higher than the high of all previous twelve bars, then a 3 period Moving Average of the highs is being measured and plotted until either the condition is no longer true or for a period of four bars (whichever of them is less). Vice versa, once the lowest low in X bars condition is no longer true, the plot continues for a period of four bars.
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Tom Demark (TD) Range Projections
Tom Demark also developed the technical indicator - the TD Range Projections. It gives us the opportunity to predict or project the next bar's range and shows if it's expected low or high. The projections depend on the links of the open to close of the latest period.
1) Close of the most recent bar is less than the open:
(Current High + 2 * Current Low + Current Close) = X
Projected High = X - Current Low
Projected Low = X - Current High
2) Close of the most recent bar is greater than the open:
(2 * Current High + Current Low + Current Close) = X
Projected High = X - Current Low
Projected Low = X - Current High
3) Close of the most recent bar is equal to the open:
(Current High + Current Low +2 * Current Close) = X
Projected High = X - Current Low
Projected Low = X - Current High
It's important to remember that if prices open outside the channel (above or below the projected high or low) then prices are likely to move on in the direction of the breakout. And if the open is within the projected range, it should stay within that range.
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Tom Demark also developed the technical indicator - the TD Range Projections. It gives us the opportunity to predict or project the next bar's range and shows if it's expected low or high. The projections depend on the links of the open to close of the latest period.
1) Close of the most recent bar is less than the open:
(Current High + 2 * Current Low + Current Close) = X
Projected High = X - Current Low
Projected Low = X - Current High
2) Close of the most recent bar is greater than the open:
(2 * Current High + Current Low + Current Close) = X
Projected High = X - Current Low
Projected Low = X - Current High
3) Close of the most recent bar is equal to the open:
(Current High + Current Low +2 * Current Close) = X
Projected High = X - Current Low
Projected Low = X - Current High
It's important to remember that if prices open outside the channel (above or below the projected high or low) then prices are likely to move on in the direction of the breakout. And if the open is within the projected range, it should stay within that range.
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TVI, or the Trade Volume Index, uses price and volume to demonstrate if a security is being sold or purchased; that's why it resembles the On Balance Volume indicator. The OBV method (On Balance Volume) function effectively with daily prices but doesn't function as well with intraday tick prices. The TVI takes into consideration intraday tick data while the OBV takes into consideration the end of day data - that's the distinction between them.
The TVI is able to identify if a security is being distributed or accumulated. It shows that trades are taking place at the bid price as sellers distribute the security if the TVI is moving down. Trades are taking place at the asking price as buyers accumulate the security if the TVI is moving up. The prices start to move to the upwards if prices are flat and the TVI is rising. The prices decrease if prices are flat and the TVI is falling.
Tick prices, especially stock prices, often demonstrate trades at the ask or bid price for extended periods without changing which makes a resistance level or flat support in the chart. During these periods of unchanging prices, the TVI goes on accumulating this volume on either the purchase or sell side, which depends on the last price change.
The Trade Volume Index is measured by adding each trade's volume to a joint total when the price shifts up by a specified amount (which is known as the "Minimum Tick Value") and subtracting the trade's volume when the price shifts down by a specified amount.
Change = Price - Last Price
MTV = Minimum Tick Value
Accumulation when Change > MTV or Distribution when Change < MTV
With direction determined, calculate the TVI:
Accumulation: TVI = TVI + Today's Volume
Distribution: TVI = TVI - Today's Volume
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Market trends seem to follow geometric patterns as they go through both low and high trends. An uptrend creates a series of trends that have higher lows and highs. A trend line drawn between the rising lows can often be fairly accurate in determining where the market can find greater support during the next low trend and indicate fairly good buying levels.
Many Forex traders will choose an area below the trend line at which stop orders are are placed resulting in a sharp sell off. New sellers are generally attracted by breaks below the uptrend line. It's quite normal to see a series of lower lows and lower highs during a downward trend in the market. In this case, the trend line is drawn in alignment with the descending highs and will mirror the analysis as described above.
Every possible piece of information that is known is included in the price of a security, for this reason technical analysis will hold up. This information removes the necessity to analyze the political, economic and fundamental factors that have a big influence on price. Since all of the information that is available is already factored into the current price, the price movement is all that needs to be analyzed. The tendency for prices to trend isn't guaranteed; therefore any analysis should rely on common sense and empirical evidence. The fact that prices do trend is supported by the time proven Dow Theory.
For example, if homeowners have some reason to believe that Forex interest rates will increase and depreciate the value of their homes, they will be more likely to consider selling. Three similar homes in the same area could be sold at various prices. This would be much more preferable to dropping the prices of the homes down to low simply based on interest rates. Prices will tend to move more consistently over a period of time, but in the same direction.
With numerous participants in a large market such as global equities, prices often tend to move from high to low in one direction. But, prices will continue on a downward slope until a balance is reached between buyers and sellers. Sometimes this slope is gradual and sometimes it can happen really quick, but it's what a technical analyst tries to identify and exploit. When this trend is identified, a house may be sold short because the trend is getting lower. Price trends are one of the major concepts that give value to a technical analysis. If someone disagrees with the Dow Theory, they will usually disagree with a technical analysis as well. A technical analyst theorizes that all investors display the same type of behavior. There are the repeating attitudes that "Everyone wants in on the next Microsoft", "Stock in a company with a new technological invention will sky rocket". While this might be an irrational theory, it does still exist. A technical analyst will even create a chart showing patterns of price movements are predictive qualities.
Since their primary concern is price trends, they are interested in anything that can influence prices. Some even monitor the enthusiasm that investors display with surveys. These surveys are used to attempt to determine the attitudes the investment community has and whether they're going to be bullish about the investment or eager.
They also gather information from surveys to help determine if a particular trend will reverse and whether new trends are about to develop. Extreme reactions from investors can alter the outcome of a technical analysis. If most of the investors surveyed are bullish, it's a good indicator that there are very few buyers remaining in the market place. If investors appear to be long, there are generally more sellers than buyers and indicates the market is trending down. This concept is referred to as contrarian trading.
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There are some types of trend lines in technical analysis. They are the followings:
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Anytime that the demand for currency exceeds the currency offered, the exchange rate on Forex grows. On the other hand, if the volume of currency for sell is less than the volume that participants are seeking to buy, the market rate falls. When the demand lasts for a long time, it causes a rate in growth and will lead to the market being saturated. From the time that offers exceed demand; the sales are decreased in rate.
Trend corrections are the movements that are directed against the direction in which the previous trend was headed. This movement doesn't surpass the previous trend. A trend is considered a phenomenon that will return prices to a correct channel and does not allow the movements in the market to deviate from the fundamental factors.
If participants will open long positions and when satisfied by the increase of an exchange rate sell with a purpose of profiting quickly, it is called an ascending trend. But, if the principal factors that have resulted in an increase in the demand for currency have not changed, it renews the buying of currency and increases the rate. Then that particular movement takes a direction.
There are two kinds of trend: ascending and descending trend.
Ascending trend - An ascending trend is any period in which exchange rates reach a higher value when compared to the previous rate. It's an upward gain in rates from the rate before it.
The bottom points of waves (local minima) join a direct line - trend line:
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Descending trend - Whenever the current rate of exchange depreciates, it is a descending trend. It is simply, when the rates value becomes lower.
Trend lines are drawn by connecting the highest peaks of local maximums for ascending rates and the local minimums for descending rates.
When the trend lines form a straight, or more even line, it confirms that particular trend. One of the criteria for determining trend force is examination of breaks in the support or resistance levels. Any trend that receives a lot of resistance will be weaker. And, without support, the trend will eventually change in the future.
There are several general rules that are followed in defining trend force:
1. The longer a trend lasts, the stronger it becomes however there is still a limit.
2. When a trend begins abruptly and ascends or descends quickly, it's a strong trend.
3. If a trend line reflects a long, level line, it's very likely the trend will continue.
4. While an abrupt trend usually indicates a strong trend, they can also change abruptly.
5. No matter what the trend is, it will eventually slacken. High trends will eventually become lower and low trends will eventually rise.
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A reversal trend refers to the changing of a trend, change is expressed when the rate changes direction after a break, or penetration point. However, a reversal trend needs to be differentiated from a deviation. A deviation is a simple change in trend that doesn't lead to the complete change of the trend.
On Forex, when a change in a ascending trend is confirmed, it signals a good time to sell. But, when the change in a descending trend is confirmed, it represents a very good time to buy. The best way to confirm the change of either trend is to monitor the trend lines. Confirmation can be noted when a trend that met with a lot of resistance becomes a trend that is highly supported, or just the opposite.
Transition of a support line to a resistance line
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The Moving Average Triangular indicator measures a simple arithmetic average of prices, specified by the input Price and creates a simple arithmetic average of this average. The length of every of these averages is one more than half the value specified in the input Length, rounded to a whole number. This uses all the price data from the latest number of bars specified by the input Length, but with the smoothing effect of so-called averaging the average.
A moving average is usually used for identification of a trend. The direction in which the average is shifting and the prices' relative position and the moving average are extremely important. Declining moving average values and prices below the moving average demonstrate a downshift. Rising moving average values "direction" and prices above the moving average "position" demonstrate an upshift. While a displaced moving average forms the moving average value of a previous bar or later bar on the ongoing bar.
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The Triple Exponential Moving Average (TEMA) is a unique combination of a single exponential moving average, a double exponential moving average, and a triple exponential moving average that provides less lag than any of those three individually. It is not just a moving average of a moving average of a moving average. It can be used instead of traditional moving averages for smoothing price data or other indicators.
As well as a momentum indicator, TRIX (the Triple Exponential Moving Average) is an oscillator which follows overbought and oversold markets. For that watch a negative value demonstrate an oversold market and positive value to demonstrate an overbought market. When TRIX is used as a momentum indicator, a negative value suggests momentum is decreasing while a positive value suggests increasing momentum. Some analysts think that the TRIX crossing above the zero line is a purchase signal and a closing below the zero line is a sell signal. Distinction between price and TRIX can also show important market turning points.
TRIX filtration of market noise and its tendency to be a leading and not a lagging indicator are two advantages of TRIX over other trend indicators. Insignificant cycles are excluded by using triple exponential smoothing. It's able to lead a market as it calculates the distinction between each bar's smoothed version of the price information. TRIX is best used together with another market-timing indicator so as to reduce false signals when used as a leading indicator.
An exponential moving average of the data is taken for the given period for calculating TRIX. Afterwards an exponential moving average is taken of that result for the same period, followed by another for the second result. The percent change in value of the third moving average is then returned as the value of the TRIX. The value of the TRIX at the beginning of a data series is considered to be zero. Since it uses exponential moving averages, its primary values comprise in its calculation the zero value. It's possible to ignore values before 3 times the period has finished.
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The True Strength Index (TSI) is a momentum-based indicator, developed by William Blau. Designed to determine both TSI, or the True Strength Index is a momentum-based indicator, was designed by William Blau. The TSI is suitable for intraday time frames as well as long term trading and helps to define trend and oversold/overbought conditions.
The True Strength Index is a version of the Relative Strength indicator. It uses a double smoothed EMA of price momentum to diminish constant price changes and pay attention to spot trend shifts with little or zero lag. An increasing True Strength value demonstrates increasing momentum in the direction of the price movement.
Long Term is the First Period and Short Term is the Second Period used in the double exponential smoothing of momentum.
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The Typical Price function measures the average of the high, low, and closing prices for the day using a simple, single-line plot. The ordinary price gives a simplified view of the day trading prices for as well as it happens with other price-adjustment functions. You can use it for smoothing out some of the inconstancy of the closing price because it comprises information for the whole trading day and not only the result of the day's end. The Typical Price indicator is measured by adding the high, low and closing prices together, and then dividing by three.
Typical Price = ( High + Low + Close / 3 )
The Typical Price is a milestone of the Money Flow Index. It can be used in any place a closing price or other single price field would be used. For instance, it could be compared to a moving average of its value to define when a security is trending downward or upward.
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Ultimate Oscillator (ULT, UOS)
The Ultimate Oscillator combines a stock's price action during 3 different time frames into one bounded oscillator. These 3-time frames are short, intermediate, and long term market cycles - or 7, 14 and 28-period. This Oscillator was created by Larry Williams.
It's important to remember that all these time periods overlap - the 28-period time frame comprises the 14-period time frame as well as the 7-period time period. It means that the action of the shortest time frame is comprised in the calculation 3 times and has an enlarged influence on the results. It is depicted as a single line put on a vertical range valued between 0 and 100 (where the oversold territory is below 30 and the overbought territory is over 70).
When there is discrepancy between price and the Ultimate Oscillator trading should take place. And a bullish signal is generated, provided the Oscillator falls below 30 during this discrepancy and afterwards the Oscillator moves over its peak during the discrepancy as soon as the price reaches a new bottom and is not supported by a new bottom of the Ultimate Oscillator.
Once the value of the Ultimate Oscillator rises above 70 (or above 50) and then falls below 45, the following uptrend can be finished. That's what Larry Williams says. A bearish signal is generated if the price reaches a new peak and is not supported by a new peak of the Ultimate Oscillator (in case if the Oscillator rises over 50 during this discrepancy and the Oscillator then falls to a new low during the discrepancy).
Once the value of the Ultimate Oscillator rises above 65 or falls below 30 the following downtrend can be finished. That's why the Ultimate Oscillator indicator measures the sums of the True Ranges of the number of bars specified by the inputs Avg1Len, Avg2Len and Avg3Len. These sums are divided into the sums of the distance from the close to the low. This value is weighted for the 3 lengths which are included into the chart.
A lot of analysts believe discrepancies between the Ultimate Oscillator as well as a breakout in the trend of the indicator are important signals. For instance, a bearish discrepancy happens when Forex market prices rise to a new peak but the indicator does not follow. Vice versa, a bullish discrepancy happens if Forex market prices shift down to a new bottom but the indicator does not follow.
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The Upside/Downside Ratio function attempts to define the momentum of the market by measuring the ratio of the volumes of declining (down) to advancing (up) issues on the New York Stock Exchange. As a rule, this indicator is smoothed with a moving average to filter out day-to-day shifts and demonstrate longer-period trends.
When more volume is linked to stocks that are advancing (increasing in price) than those decreasing values will be greater than 1.0. When greater volume is linked to stocks with decreasing price values are less than 1.0.
The Upside/Downside Ratio is an effective oversold/overbought indicator. Very low values are likely to demonstrate that the market is becoming oversold. In the same way, very high values are likely to demonstrate that the market is becoming overbought with a sell-off happening rather soon as well as a prices' fall.
The so-called "Multiple 9-to-1 days" is another factor to seek (an Upside/Downside Ratio greater than nine). Two or more values of nine or greater within a 3-month period usually are able to demonstrate the start of a strong bull market. Martin Zweig states in his book "Winning on Wall Street": "Every bull market in history, and a lot of good intermediate advances have started with a purchasing rush comprising one or more 9-to-1 days".
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The Upside/Downside Volume indicator demonstrates the distinction between advancing (up) and declining (down) volume on the New York Stock Exchange. The Upside/Downside Volume indicator demonstrates the net flow of volume into or out of the market providing short-term sell or purchase signals, based on zero line crossovers.
As well as other oscillators of that kind, the bigger the distance from the zero line is, the greater the chances of reversal. The oscillator is very sensitive: downward shifts are associated with selling, and upward with purchasing. The Upside/Downside Volume indicator can be a very effective trading instrument if used together with the TRIN or other technical indicators.
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A VMA is an EMA that's able to regulate its smoothing percentage based on market inconstancy automatically. Its sensitivity grows by providing more weight to the ongoing data as it generates a better signal indicator for short and long term markets.
The majority of ways for measuring Moving Averages cannot compensate for sideways moving prices versus trending markets and often generate a lot of false signals. Longer term moving averages are slow to react to reversals in trend when prices move up and down over a long period of time. A Variable Moving Average regulates its sensitivity and lets it function better in any market conditions by using automatic regulation of the smoothing constant.
To calculate the Variable Moving Average (VMA):
with VR = Volatility Ratio
VMA = [ { 0.0788 * VR } * Close ] + [ { (1 - 0.078) * VR } * yesterday's VMA ]
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The Vertical Horizon Filter illustrates the trendiness of certain equity. It lets indicate if the stock is following a trading range or a trend. It was developed by Adam White.
If the Vertical Horizon Filter is growing, this is likely to demonstrate that a trend is forming. Falling values are likely to demonstrate that prices may be decreasing of the trend and entering a congestion phase, as usually the stock trades within a definite price range without large net up or down shift. It the indicator is higher, the other trend-following indicators are going to function better.
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The statement that stocks bottom panic from selling, after which a rebound is inevitable is effectively used by this analysis. One way of measuring this mechanism is to watch widening range between low and high prices every day. On the whole, a progressively wider range, watched during a relatively short period of time, depicts that a bottom is close. Usually price peaks are reached in a slower tempo and are characterized by the price range narrowing.
This calculation of the trading range takes place over a certain time-period for defining if an issue is being "dumped" and is approaching a bottom or not. A rise in the volatility line over the reference line is a supposition to a valid bottom. In the same way, an indication of an inevitable peak would be a decrease in the volatility line below the reference line. As long as inconstancy is growing, a stock is not likely to reach the top. It's important to remember that this study should be used together with trend following analyses and momentum oscillators for precision and confirmation.
There are two ways to interpret this measure of inconstancy. The first method states that market peaks are usually followed by growing inconstancy and market bottoms are usually followed by decreased inconstancy. On the contrary, Mr. Chaikin's method states that decrease in volatility over a longer time period depicts a close peak (for example, a mature bull market). And a rise in the Volatility indicator over a short time period demonstrates that a bottom is close (for example, a panic sell-off).
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Volume is the number of shares traded during any certain time-period, (e.g., an hour, a day, a week, a month). It is one of the simplest but essential analyses of volume which offers investors a tool of technical analysis and effective clues as to the intensity of a certain price shift.
High volume is characteristic of market tops when a consensus forms believing that prices will move higher. High volume is also typical while launching new trends as prices emerge from a trading range. Because of panic-driven selling volume often increases just prior to market bottoms which usually happen during consolidation periods where prices move sideways in a trading range. Low volume also often appears during the indecisive period during market bottoms.
There is a majority of low volume levels during consolidation periods. This happens due to the indecisive expectations during consolidation periods, when prices shift sideways within any narrow strading range. Also low volumes may appear during market bottoms, another "indecisive period".
Volume can also be useful in defining the health of an existing trend. A healthy up-trend should have higher volume on the upward motion of the trend, and lower volume on the way down. A healthy lower volume on the upward corrective legs and downtrend usually has higher volume on the downward legs of the trend.
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The Volume Accumulation Oscillator depicts the cumulative volume fixed by the distinction between the close and the middle point of the day's range. This volume indicator addresses some of On Balance Volume's shortcomings. As seen from the name, it was developed by Mark Chaikin.
Volume Accumulation uses the connection between the closing price and the mean price to appoint a proportion to the volume (if compared to the OBV indicator (On Balance Volume which appoints all the day's volume to the sellers if it closes down or to the buyers if a security closes up).
Where OBV assigns all of a day's volume a positive or negative value, Volume Accumulation takes into consideration only a percentage of the volume as positive or negative (depending on where the close is connected to the average price of the day). The only time the whole day's volume is appointed a positive value is when the close is the same as the day's high. The opposite concerns for a close at the day's low. Use the Volume Accumulation Oscillator as well as the OBV, and the volume will confirm a trend.
The formula for Chaikin's Volume Accumulation is:
VAC = Volume * ( Close - High + Low / 2 )
A rising price trend will be confirmed by a rising VA line. An uptrend paired with a rising Volume Accumulation line is considered bullish while a Volume Accumulation line that deviates from the price shift direction should warn of a near-term price correction.
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Volume by Price is a perfect indicator comprising price and volume into one instrument. The volume of trades is depicted in the chart horizontally at price intervals. Volume by Price can be used to understand which prices cause the largest activity and volume. This is useful in defining where the majority of historical trading volume happened and help find significant support and resistance lines. Volume by Price can also assist in using price changes or reversals.
As a rule, there is a connection between a price change and a large volume so if the ongoing price is shifting around a level of high volume expect a price direction change. Low volume as well can be connected with times of consolidation or inconstancy. Note that this measure is a very subjective as volume by Price is never enough and of itself for planning trades.
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The distinction between 2 moving averages of volume is the factor which the Volume Oscillator uses. Due to it helps to define if the whole volume trend is rising or falling.
When the Volume Oscillator moves above zero the shorter-term volume MA has risen above the longer-term volume MA. This means that the short-term volume trend is higher - for example, has more volume - than the longer-term volume trend. Falling prices coupled with decreased volume and bullish signals start from increasing prices coupled with increased volume. Thus, if volume shifts upwards as prices fall, or volume decreases as prices rise, the market is considered to be showing signs of basic weakness.
This strategy is based on the factor that rising prices coupled with increased volume means more buyers which in future lead to an enduring move. Also falling prices coupled with rising volume provide fewer buyers.
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Volume + plus indicator represents the advancing issues' volume. It is used to measure the total volume of stocks that at the end of the day closed higher than their previous closing price.
Generally it is viewed as an indication of buying pressure. For example, when advancing volume expands it is generally viewed as bullish.
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VROC, or Volume Rate of Change, is mathematically resembles Price ROC but indicates the ROC of the security's volume and not its closing price. The Volume ROC demonstrates the speed at which volume is shifting. This can turn out to be rather helpful as almost each essential chart formation, such as peaks, bottoms or breakouts, is followed by a sudden volume raise.
To calculate the Volume ROC indicator you should divide the amount that volume has changed over the last "n periods" by the volume "n periods" ago. The result is the percentage that the volume has changed in the latest "n periods". A positive number will result if the volume is higher today than it was "n periods" ago. The ROC will be negative if the volume is lower now than it was "n periods" before.
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The Weighted Close indicator measures an average of every day's price. Its name stems from the fact that twice as much weight is given to the closing price as is given to the sum of the daily high and daily low.
Use the Weighted Close anywhere a closing price or other single price field could be used. For instance, you may compare it to a moving average of its value to define when a security is trending downward or upward.
The Weighted Close gives a simple view of the day as well as other price adjustment functions. It can be used to smooth out some of the inconstancy of a chart of closing prices as it comprises information for the whole trading day. A Weighted Close chart comprises the simplicity of the line chart with the scope of a bar chart, by fixing a single point for each day that includes the high, low, and closing price.
(Daily Close * 2) + Daily High + Daily Low / 4
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The Weighted Moving Average WMA is measured by averaging all the previous values over the given period, (also the ongoing value). These values are weighted linearly (the oldest value gets a weight of 1, the next value gets a weight of 2, and so on up to the ongoing value, which gets the same weight as the period). Until there are enough values to fill the given period the moving average at the start of a data series is not determined.
It's important to remember that for more exaggerated weighting on the ongoing values, you may use an EMA. You could also average 2 or more WMA together.
By looking at the moving average of the price, a more general picture of the basic trends can be seen MA are useful for smoothing raw, noisy data, such as daily prices. Price data can change greatly every day without demonstrating if the price is increasing or decreasing.
Moving averages can be used to see trends, that's why they can also be used to predict if data is bucking the trend. A weighted moving average is measured by multiplying each of the previous day's data by a weight. The weight in its turn is based on the number of days in the moving average. In this example, the first day's weight is 1.0 while the value on the most recent day is 5.0. This gives 5 times more weight to today's price than the price 5 days before.
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RSI (The Wilder's Relative Strength Index) is a rate of change oscillator. It compares the price of a stock to itself and doesn't compare the relative performance of one stock to another. It was created by J. Welles Wilder, Junior. This indicator was used to spot negative and positive discrepancies with price. It may also be used to define if a stock or index has reached an oversold or overbought condition.
Values near the 30% - oversold. Vice versa, a reading of 70% or higher is usually an overbought position. It is important to first determine whether a definable trend exists if used as an oversold/overbought indicator.
After the direction of a primary trend has been successfully identified, use Wilder's RSI to trade precisely according to the trend. The better way to determine it is to use another technical indicator such as price moving averages or trend lines.
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This indicator was created by Welles Wilder. Wilder's Smoothing indicator is similar to EMA. Wilder's Smoothing reacts slowly to the changes of the price in comparison with other moving averages. Wilder's Smoothing is a part of wilder's RSI.
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Wilders Volatility Index measures true range over time. Sometimes it is similar to Average True Range. But there are some differencies between:
1. This period's High and Low.
2. The previous period's Close and this period's High.
3. The previous period's Close and this period's Low.
The discussions on Volatility (Chaikin's), Option Volatility, and Standard Deviation explain the interpretation of other volatility indicators.
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Developed by Larry Williams, the Williams' Accumulation/ Distribution indicator is used to define if the marketplace is controlled by sellers (distribution) or by buyers (accumulation) and trading when there is discrepancy between the A/D indicator and price.
To calculate the Williams' Accumulation/Distribution indicator, determine:
True Range High (TRH) = Yesterday's close or today's high whichever is greater
True Range Low (TRL) = Yesterday's close or today's low whichever is less
The day's accumulation/distribution is then calculated by comparing today's closing price to yesterday's closing price.
If today's close is greater than yesterday's close: Today's A/D = today's close - TRL
If today's close is less than yesterday's close: Today's A/D = today's close - TRH
If today's close is the same as yesterday's close then the A/D is zero.
The Williams' Accumulation/Distribution indicator is a cumulative total of the daily values:
Williams A/D = Today's A/D + Yesterday's Williams A/D
Williams states it's worth selling if the price makes a new high and the indicator fails to follow suit. As well, it's better to purchase if prices fall to a new bottom yet the A/D indicator fails to reach a new low.
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%R (Williams Percentage Range) is a momentum indicator that helps to highlight overbought and oversold areas in a nontrending market. As seen from its name, it was developed by Larry Williams.
The Williams %R is interpreted as the Stochastic Oscillator but depicted upside-down. Also there is no internal smoothing in the Stochastic Oscillator. Readings in the 0 to -20% range show that it is overbought while readings in the range of -80 to -100% demonstrate that the security is oversold. As with all overbought/oversold indicators, before trading it's worth waiting for the security's price to change direction. As the security's price continues to increase or to decrease it's quite untypical for overbought/oversold indicators to stay in that condition for a long time. Due to the fact that it can take some time before the price shows signs of deterioration selling on the first indication of an overbought signal may diminish profit.
The ability of the Williams %R indicator to anticipate a reversal in the basic security's price is extremely interesting. Williams %R usually creates a fall and turns upwards a few days before the security's price moves upwards. Also very often the indicator reaches a high and turns down a few days before the security's price follows suit.
The formula to calculate Williams' %R is:
( Highest High in n periods - Today's Close / Highest High in n periods - Lowest Low in n periods ) * -100
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Zig Zag demonstrates past performance trends and only the most important changes. It filters out all changes less than a specified amount. First of all, the Zig Zag indicator is used to help you watch changes by highlighting the most essential reversals. Note that the last segment in a Zig Zag chart can change based on changes in the basic plot, where price is just one of the examples.
Don't develop a trading system based on the Zig Zag indicator, as it to be used to highlight historical patterns. A change in a security's price can change the indicator's previous value. As the Zig Zag indicator adjusts its values based on subsequent changes, it has wonderful estimation of previous prices.
To measure the Zig Zag indicator place imaginary points on a chart when prices reverse by at least the specified amount. To connect the imaginary points use straight lines. Ignored any changes in prices which are below the certain amount.
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