It is the use of charts and indicators to show trends in the
market with the main concern being in price movement.
Charts are graphical displays of price and volume data.
Technical indicators include a variety of measures of
relative price level and volume of security for example price momentum, market
sentiment, and funds flow.
Indicators will measure how a change in supply and demand may affect a security’s price.
This is the average of the closing price of a security over a specified number of periods. The simple moving average will weigh each price equally in the calculation of the average price.The exponential moving average gives the greatest weight to recent prices while giving exponentially less weight to older prices.
A Security trending down in price will trade below its
moving average and a security that has been trading up will trade above its
moving average. Once a security starts approaching the moving –average line, this
is called a resistance level, many investors will be concerned and start
selling the security.
When a short-term moving average crosses from underneath a
longer-term average, this movement is bullish and is a golden cross. When a
short-term moving average crosses above a longer-term moving average, this
movement is bearish and is called a dead cross.
This consists of a moving average plus a higher line representing the moving average plus a set number of standard deviations from average price and a lower line that is a moving average minus the same number of standard deviations. The more volatile the security being analyzed becomes, the wider the range becomes between the two outer lines or bands.
Used to determine price trend direction. In a bull
market, the closing price is higher than the opening price and in a bear
market, the closing price is lower than the opening price. It is calculated as
RVI-= (Close-Open)/ (High-Low).
It measures the direction of volatility on a scale. Volatility
is found by calculating the annualized Standard deviation of daily change
in price. If the price of a stock moves up and down rapidly over
short time periods, it has high volatility. If the price almost
never changes, it has low volatility.
Readings greater than 50 indicate the volatility is more to the upside, buy.
Reading lower than 50, indicate the direction of volatility is to the downside,
and sell. Close a long position when RVI is below 40 and close a short position
when RVI rises above 60.
Ranges from 0 to 1. Using RSI within the stochastic
formula gives the traders an idea of whether current RSI is overbought or
oversold. If value is below 0.20, stock means it is oversold and if it is
above 0.80 suggests RSI is reaching extreme levels and could be used to signal
a pullback in the underlying security.
Fast Volume Moving Average is usually over a period of
14days or weeks. The slow Moving Average is usually 28 days or weeks. If a
market is declining or moving in a horizontal direction, the volume should
contract. Note that an increasing price, together with declining volume, is
always, without exception, bearish. Also, rising volume with declining prices
is also bearish.
Used by traders to predict an asset’s future direction.
This reflects movement in volume. It is calculated by taking the total volume for trading period and assigning a +/- number depending on whether price is up/down.When price is up, the volume is assigned a positive value, while a negative value is assigned when price is down for the period.
There are three common methods used to interpret the MACD:
This calculates a least square regression line over the preceding time periods, and then projects it forward to the current period. It calculates the value if the regression line continued.
It is a momentum oscillator based on the smoothed
rate-of-change for four different time frames.Buy signals occur when the KST
crosses above the zero line, or when the KST crosses above its signal line.
Sell signals occur when the KST crosses below the zero line, or when the KST
crosses below the signal line. When the KST stays above zero during an uptrend,
it confirms the trend. When KST stays below zero during a downtrend, it
confirms the downtrend.
Traders also watch for when the indicator diverges with
price. If the price is making new highs, but KST isn't, it indicates price
momentum is slowing. If the price is making new lows and KST isn't, it
indicates sell pressure is slowing.
Used to determine long-term trends of money flow while
remaining sensitive enough to short-term fluctuations to enable a trader to
predict short-term reversals.
Uses divergence to identify when price and volume are not confirming the
direction of the move. It is considered to be a bullish sign when the value of
the indicator is heading upward while the price of the security continues to
fall.
This indicator is similar to Bollinger Bands. Measures
the movement of stocks in relation to an upper and lower moving-average
band. An overbuy occurs when prices move above the upper band, and an
oversell occurs when prices move below the lower band.
Shows support and resistance, and momentum and trend
directions for a security or investment.
Used to average price (smooth price fluctuation) and reduce
a lag that other moving averages have.
Formed by two moving averages that define upper and lower
price range levels. An envelope is a technical indicator used by investors and
traders to help identify extreme overbought and oversold conditions in a
market. Many traders use an envelope so that a sell signal occurs when
price reaches the upper band, signifying an overbought market, and a buy signal
occurs when price drops to the lower band, representing an oversold market.
An indicator that uses price and volume to assess the power
behind a move or identify possible turning points.
A positive price change signals that buyers were stronger
than sellers, while a negative price change signals that sellers were stronger
than buyers.
Used to illustrate the relationship between the rate of an
asset's price change and its volume. It is an indicator that attempts to
identify the amount of volume required to move prices. Generally a value
greater than zero is an indication that the stock is being accumulated (bought)
and negative values are used to signal increased selling pressure.
A high positive value appears when prices move upward on low volume. Strong
negative numbers indicate that price is moving downward on low volume.
It consists of two lines that are drawn at the highest and
lowest prices for a specified period of time.The Upper line displays the
highest price achieved in the last 24 hours and the Lower line displays the
lowest price achieved in the last 24 hours. These lines can act as support
or resistance when price comes into contact with them. The rationale is that
price has already bounced off of those levels once before (when it made the previous
high or low) and could bounce off those levels again in the future.
Attempts to quantify the trending or directional behaviour
of a market. It is one of the best trend following indicator in technical
analysis. It helps identify trends and whether or not price is moving quickly
enough to be worth a long or short play.
This is a statistical measure that reflects the correlation
between two securities. The Correlation Coefficient is positive when both
securities move in the same direction, up or down. The Correlation Coefficient
is negative when the two securities move in opposite directions
This is an indicator for long term stock. A buy signal is
formed when there is an upturn in the curve after an extreme low in the curve.
A sell signal is formed when there is a higher peak in stock prices but a lower
peak in the Coppock curve.
This can be used to identify a new trend or warn of extreme
conditions. CCI is relatively high when prices are far above their average. CCI
is relatively low when prices are far below their average. In this manner, CCI
can be used to identify overbought and oversold levels.
The CCI usually falls in a channel of -100 to 100. The
conventional CCI trading system works as follows. When it rises above 100, buy
and hold until CCI falls back below 100. When CCI falls below -100, sell short
and cover the short when it rises above the -100 line. Some trading systems
cover on a rise above minus 85.
A choppy market is on whose prices swing up and down
considerably but with no resulting overall price movement in either direction.
Choppiness Index is designed to measure the market's
trendiness (values below 38.20) versus the market's choppiness (values above
61.80). When the indicator is reading values near 100, the market is
considered to be in choppy consolidation. The lower the value of the Choppiness
Index, the more the market is trending
RSI (Relative Strength Index) calculation as basis by
using price movements over periods instead of the price change over one
period.
Positive CMO values are considered bullish and negative CMO
values are considered bearish. Bullish whereby investors consider the stock
price will rise and they buy whereas bearish is whereby investors consider the
stock price will fall and they sell. The CMO indicator's overbought and
oversold levels are considered +50 and -50 respectfully.
This is a trend-following indicator that identifies the stop
loss for a long or short position by using a variation on directional movement.
It is calculated on the average true range of an instrument’s volatility.
Chaikin Money Flow measures the amount of Money Flow Volume
over a specific period. A positive CMF value signals accumulation, while a
negative CMF value signals distribution. A reference line is drawn at zero to
help quickly identify accumulation/distribution regions. The further the
distance from the zero reference line, the stronger the signal.
Measures the strength of buyers compared to sellers by
assessing the ability of each to push price to an extreme level. Buy when
the scale is positive and sell when it is negative.
Shows the market momentum of a recent number of periods
compared to the momentum of a larger number of previous periods. Buy when
Awesome Oscillator becomes positive. Sell when Awesome Oscillator becomes
negative.
The Average True Range (ATR) is an indicator that
measures volatility. A stock experiencing a high level of volatility will
have a higher ATR, and a low volatility stock will have a lower ATR.
This is used to measure whether a security is uptrend or
downtrend and the magnitude. It basically shows new trend beginning. Aroon
up (blue line) measures the amount of time it has been since the highest price
during that period. Aroon down (red line) measures the amount of time since the
lowest price during that time period.
Removes small price fluctuations and enhances the trend by
applying a moving average twice.
The number of stocks that closed at a higher price than the
previous day's close, and the number of stocks that closed at a lower
price than the previous day's close. Technical analysts looks at advances and
declines to analyse the overall behaviour of the stock market, in order to
discern volatility and to predict whether a price trend is likely to continue
or reverse. Typically, a market will be more bullish if more stocks advance
than decline.
Accumulation/Distribution is a momentum indicator which
takes into account changes in price and volume together. The idea is that a
change in price coupled with an increase in volume may help to confirm market
momentum in the direction of the price move.
If the Accumulation/Distribution indicator is moving up the
buyers are driving the price move and the security is being accumulated. A
decreasing A/D value implies that the sellers are driving the market and the
security is being distributed.