Indicators and oscillators

Editor's Notes

• #2: TA is a study of price where chart is a primary tool.
• #14: Indicators are calculations based on the price and the volume of a security that measure such things as money flow, trends, volatility and momentum. Indicators are used as a secondary measure to the actual price movements and add additional information to the analysis of securities. Indicators are used in two main ways: to confirm price movement and the quality of chart patterns, and to form buy and sell signals.
• #15: Length: Long trendlines (more than the median 137 days) are more important than short ones. They lead to more powerful declines after the trendline pierce. Slope:Shallowtrendlines (up to 45 degrees) are more reliable than steep ones (over 60 degrees). Again, they lead to more powerful moves after the trendline pierce. Volume: An upward volume trend results in a more powerful drop after the trendline pierce.
• #16: Length: Long trendlines (more than the median 139 days) are more important than short ones. They lead to more powerful rallies after the trendline pierce. Slope: Shallow trendlines (up to 45 degrees) are more reliable than steep ones (over 60 degrees). Again, they lead to more powerful moves after the trendline pierce. Volume: A downward volume trend results in a more powerful rally after the trendline pierce.
• #18: PAGE 40A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data. This type of moving average reacts faster to recent price changes than a simple moving average. The 12- and 26-day EMAs are the most popular short-term averages.
• #19: Explaincorssover divergence
• #20: Using for Short term trade
• #21: Weekly trade
• #22: The signal line is a 9-day EMA of the MACD Line.12-day EMA (green), 26-dayMACD works extremely when you trade it with chart pattern and respect its zero line MACD is the best indicator if you trade divergence . MACD first bullish crossover above zero (not below zero) in an uptrend can ensure your maximum profit in shortest time span time frames.MACD is used with Momentum Indicator often to catch the early trend move .
• #23: MACD with Trend
• #24: Oscillator is a momentum indicator that shows the location of the current close relative to the high/low range over a certain number of periods. The stochastic indicator is:a momentum oscillator that can warn of strength or weakness in the market, often well ahead of the final turning point.based on the assumption that when a stock is rising it tends to close near the high and when a stock is falling it tends to close near its lows. The original stochastic oscillator, developed by Dr. George Lane, is plotted as two lines called %K, a fast line and %D, a slow line.%K = 100[(C - L14)/(H14 - L14)]C = the most recent closing price L14 = the low of the 14 previous trading sessions H14 = the highest price traded during the same 14-day period.New traders typically want to know the difference between Fast Stochastics and Slow Stochastics. They also want to know whether the typical default settings of 5,5 (for Fast Stochastics) or 5,5,5 (for Slow Stochastics) as seen in most charting packages developed for FX are better or worse than the typical default settings of 14,3 (for Fast Stochastics) or 14,3,3 (for Slow Stochastics)%D = 3 Day SMA average of %K %K line is more sensitive than %D%D line is a moving average of %K. %D line triggers the trading signals. Although this sounds complex, it is similar to the plotting of moving averages. Think of %K as a fast moving average and %D as a slow moving average. The lines are plotted on a 1 to 100-scale. "Trigger" lines are normally drawn on stochastics charts at the 80% and 20% levels. A signal is generated when these lines are crossed. The zones above and below these two lines can be referred to as the stochastic bands.InterpretationThe 80% value is used as an overbought warning signal, and the 20% is used as an oversold warning signal. The signals are most reliable if you wait until the %K and %D lines turn upward below 5% before buying, and the lines turn downward above 95% before selling.An overbought or oversold level indicates that a market may be vulnerable to a retracementThese signals are particularly important with monthly charts. Buying into a market with an overbought %K or selling into one that is oversold may involve above-average risk, particularly if the market is pressing against previous levels of support or resistance. SignalsThe Stochastic Oscillator generates signals in three main ways:Extreme values when the 20% and 80% trigger lines are crossed. Buy when the stochastic falls below 20% and then rises above that level. Sell when the stochastic rises above 80% and then falls below that level. The pattern of the stochastic is also important; when it stays below 40-50% for a period and then swings above, the market is shifting from overbought and offering a buy signal. And vice versa when it stays above 50-60% for a period of time.Crossovers between the %D and %K lines. Buy when the %K line rises above the %D line and sell when the %K line falls below the %D line. Beware of short-term crossovers. The preferred crossover is when the %K line intersects after the peak of the %D line (right-hand crossover). Crossovers often provide choppy signals that need to be filtered through the use of other indicators.Divergences between the stochastic and the underlying price. For example, if prices are making a series of new highs and the stochastic is trending lower, you may have a warning signal of weakness in the market.
• #26: OverviewThe RSI is a momentum indicator, or oscillator, that measures the relative internal strength of a market (not against another market or index).As with all oscillators, RSI can provide early warning signals but should be used in conjunction with other indicators.Divergences are the most important signal provided by RSI.RSI = 100 - 100/(1 + RS*)*Where RS = Average of x days' up closes / Average of x days' down closes.InterpretationRSI is plotted on a vertical scale of 0 to 100. The 70% and 30% levels are used as warning signals. An RSI above 70% is considered overbought and below 30% is considered oversold. The 80% and 20% levels are preferred by some traders. The significance depends upon the time frame being considered. An overbought reading in a 9-day RSI is not nearly as significant as an RSI for a 12-month period. RSI can be plotted for any time span. Wilder originally recommended using a 14-day RSI. Since then, the 9, 10 and 25-day RSIs have also become popular.
• #27: OverviewWilliams %R is a momentum indicator identifies overbought or oversold markets.It is plotted on an inverted 0 to 100 scale. This oscillator, a version of the stochastics oscillator, was developed by Larry Williams.t was developed by Larry Williams and compares a stock's close to the high-low range over a certain period of time, usually 14 days. SignalsMr. Williams bases his system largely on the use of the following two signals (once again notice that the signal is reliant on the direction of the underlying long-term trend):Buy when %R hits 90% to 100% and the trend is up.Sell when %R hits 10% to 0% and the trend is down.Some traders use readings below 80% to indicate oversold markets and readings above 20% to indicate overbought markets. These levels can also be used as early warning signals.
• #28: The +DI indicates the up average.The -DI indicates the down average.The ADX, average directional movement index, shows whether a trend is in effect by smoothing the difference between the +DI and -DI. According to Wilder the DMI should be used with the ADX as a filter.A rising ADX line means the market is trending and a better candidate for a trend-following system. A falling ADX line indicates a non-trending market. Some traders also look for an ADX greater than 20 or 25 to confirm that the market is trending. When the ADX line starts to drop from above the 40 level, that is an early sign that the trend is weakening. A rise back above 20 is often a sign of the start of a new trend.SignalsGenerally speaking, the two main buy and sell signals generated by DMI are as follows:A buy signal is given when +DI crosses above the -DI line.A sell signal is given when +DI crosses below the -DI line.However, some refinements are suggested by experienced traders:The crossing of DI lines only provides an early warning signal; other criteria must be fulfilled for the actual signal.The ADX should be between the upper DI line and the lower one. An ADX below 25 is a strong warning to avoid trading.
• #29: Developed by John Bollinger, Bollinger Bands are volatility bands placed above and below a moving average. Middle Band = 20-day simple moving average (SMA) * Upper Band = 20-day SMA + (20-day standard deviation of price x 2) * Lower Band = 20-day SMA - (20-day standard deviation of price x 2)The bands automatically widen when volatility increases and narrow when volatility decreases. whether prices are relatively high or low whether current trends are likely to continue or reversethe volatility of a market, based on the width of the band.W bottom and Mtop
• #30: The Parabolic SAR (stop and reverse) is a trend-following system that sets "stop-losses." It works well in trending markets, but tends to whipsaw during non-trending, sideways phases.A parabola below the price is generally bullish. A parabola above the price is generally bearish.The Parabolic System, developed by Welles Wilder who also developed the Relative Strength Index (RSI), is usually referred to as the Parabolic "SAR" (stop-and-reverse). Mr Wilder designed this indicator to supplement the other trend-following systems.SignalsThe Parabolic SAR is an outstanding indicator for providing exit points - offering sell signals when the parabola moves above the price. Buy signals are generated when the parabola falls below the price. Of course, these signals need to be confirmed by the price action itself and other, complementary indicators.It is always useful to examine different time periods; using daily, weekly and monthly charts.the indicator works extremely well when a stock is trending, but it can lead to many false signals when the price moves sideways or is trading in a choppy market
• #33: Compute the height from the highest peak (point A in The Measure Rule figure to the right) to the lowest valley in the pattern (B) then multiply it by the above “percentage meeting price target.” Add it (upward breakouts) or subtract it (downward breakouts) from the breakout price. The breakout price is the point at which price pierces the trendline. The figure shows an upward breakout with target price C. Most of the time Volume say 54% of the time decreasesVolumeT: rends downward 86% of the time.Percentage meeting price target for up/down breakouts: 66%; 48%
• #34: Expliantgts
• #36: ShapeT:hree distinct valleys that look similar. Bottom price: The price variation between bottoms is small such that it appears the three valleys bottom near the same price. Allow variations. ConfirmationThe pattern confirms as a true triple bottom once price closes above the highest peak between the valleys. Volume: Usually higher on the first bottom than on the last, trending downward 67% of the time, but it may peak beneath each valley. Percentage meeting price target: 64%
• #37: Percentage meeting price target: 40%Shape:Three peaks near the same price with a downward breakout. Middle peaks Sometimes the middle peak is priced marginally below the other two. VolumeTrends downward 59% of the time, but is usually high beneath formation of each peak. Bear market: More triple tops appear in a bear market than in a bull one. ConfirmationThe pattern becomes valid when price closes below the lowest valley in the pattern.
• #38: Volume recedes 83% of the time and gets quite low just before the breakout.Breakout Can be in any direction but is downward 64% of the time.Compute the height from the highest peak (A) to the horizontal trendline (B) and then multiply it by the above “percentage meeting price target.” Add (upward breakouts) or subtract (downward breakouts) the difference to the breakout price (the point at which price crosses the trendline) to get a price target (C).Busted: Price sometimes breaks out in one direction and then reverses to bust out in a new direction. Trade the new direction for a powerful move.
• #40: Falling wedge in downtrend.  Nice reversal.  After waning volume in the wedge, there's a good increase on the breakout. In fact, these good volume readings were able to sustain themselves during the move higher. CharacteristicDiscussion Price trend:Can be any direction leading to the pattern.ShapePrice: follows two down-sloping and converging trendlines. Duration: 3 weeks is the minimum duration, otherwise it's a pennant. Volume trend: Trends downward 72% of the time until the breakout. Breakout;Can be in any direction but is upward 68% of the time. See the figure to the right. For upward breakouts, the highest peak in the pattern (A) is the price target. Alternatively, compute the height from the highest peak (A) to the lowest valley (B) and then multiply it by the above “percentage meeting price target.” (70% ,30%)Add it to (upward breakouts) or subtract it from (downward breakouts) the breakout price (the point at which price crosses the trendline, shown here as a blue line) to get a price target, (C).Dip: After a downward breakout, price sometimes curls around the front of the wedge and soars upward. The busted pattern presents a profit opportunity from the long side.
• #41: The rising wedge put a stop to this uptrend.  Volume tails off as the trend struggles.  Volume expands as the market falls through the bottom of the wedge and the new downtrend begins. . Shape:A narrowing and rising triangle shape. Trendlines:Price bounces between two up-sloping and converging trendlines. That's 3 touches of one trendline and 2 of the opposite. Duration3 weeks is the minimum duration, otherwise it's a pennant. Volume trend:Trends downward at least 74% of the time until the breakout. Breakout:Can be in any direction but is downward 69% of the time. For downward breakouts, the lowest valley in the pattern (A) is the price target. Alternatively, compute the height from the highest peak (B) to the lowest valley (A) and then multiply it by the above “percentage meeting price target.” (58% or 46%)Add it to (upward breakouts) or subtract it from (downward breakouts) the breakout price (the point at which price crosses the trendline, shown in the Measure Rule figure to the right as a blue line for this downward breakout) to get a price target (C).The average distance to the breakout is 58% to 64% of the way to the triangle apex (where the trendlines join).
• #42: Shape:Looks like a head perched atop two shoulders. A 3-peak pattern with the middle peak above the others. The pattern should look like a person’s head and shoulders, proportional, and not lopsided. Symmetry:The two shoulders should peak near the same price, be nearly the same distance from the head, and look similar (both wide or both narrow peaks). Volume:Highest on the left shoulder followed by the head. Trends downward 63% of the time. NecklineJoins the two armpits.Confirmation:The pattern confirms as a valid one when price closes below an up-sloping neckline or below the right armpit when the neckline slopes downward.Compute the height from the head (A in the Measure Rule figure to the right) to the neckline directly below (B) then multiply it by the above "percentage meeting price target." (price target: 55%) Subtract the result from the breakout price (C). The breakout price is where price crosses an up-sloping neckline, or when the neckline slopes downward, use the right shoulder armpit.Velocity:A high velocity rise leading to the pattern often results in a larger decline post breakout. Neckline:Patternswith up-sloping necklines perform better. The Measure Rule figure shows a green up-sloping neckline. Shoulder:A higher left shoulder peak when compared to the right shoulder top results in a larger decline post breakout. The Shoulder Peak figure to the right shows this.Volume trendAn upward volume trend suggests better post breakout performance. PullbacksPullbacks hurt post breakout performance. SymmetryPatterns with an extended right shoulder perform worse. Symmetrical looking patterns also perform worse.
• #43: ShapeA 3-valley pattern with the middle valley below the others. The pattern should look like an inverted person's head and shoulders, proportional, and not lopsided. SymmetryThe two shoulders should bottom near the same price, be nearly the same distance from the head, and look similar (both wide or both narrow). VolumeHighest on the left shoulder or head, diminished on the right shoulder. Trends downward 66% of the time. NecklineJoins the two armpits. ConfirmationThe pattern confirms as a valid one when price closes above a down-sloping neckline or above the right armpit when the neckline slopes upward.Compute the height from the head low (A) to the neckline directly above (B) and then multiply it by the "percentage meeting price target" (74%). Add it to the breakout price (C). The breakout price is where price crosses a down-sloping neckline, or when the neckline slopes upward, use the peak of the right shoulder armpit. See the Measure Rule figure to the right.NecklinePatterns with down-sloping necklines perform better. The Measure Rule figure to the right shows an example of a head-and-shoulders bottom with a down-sloping neckline. ShoulderA higher left shoulder valley when compared to the right shoulder valley results in a larger rise postbreakout, but the difference is small. The Shoulder Valley figure to the right shows this. Yearly highPatterns having breakouts within a third of the yearly high perform best. Volume trendA downward volume trend suggests better postbreakout performance. ThrowbacksThrowbacks hurt postbreakoutperformance. SymmetryPatterns with an extended right shoulder perform worse. Symmetrical looking patterns also perform better.
• #44: Price trend: Can be any direction leading to the chart pattern.Shape:Looks like a short symmetrical triangle. Trendlines:Prices move between two converging trendlines. 3 weeks:Pennants are short, less than 3 weeks long. Patterns longer than that are symmetrical triangles, rising or falling wedges.Flagpole:The flagpole which leads to the pennant should be unusually steep and last several days.Volume trend:Downward trend 88% of the time. BreakoutUpward 61% of the time.Percentage meeting price target for up/down breakouts: 60%; 51%
• #46: Price trend: Can be any direction leading to the chart pattern.Shape:Looks like a short symmetrical triangle. Trendlines:Prices move between two converging trendlines. 3 weeks:Pennants are short, less than 3 weeks long. Patterns longer than that are symmetrical triangles, rising or falling wedges.Flagpole:The flagpole which leads to the pennant should be unusually steep and last several days.Volume trend:Downward trend 88% of the time. BreakoutUpward 61% of the time.Percentage meeting price target for up/down breakouts: 60%; 51%
• #47: Price trend:Can be any direction leading to the chart pattern. Shape: Looks like a small rectangle often tilted against the prevailing price trend. Trend lines: Prices move between two parallel, or near parallel, trendlines. 3 weeks: Flags are short, less than 3 weeks long. Patterns longer than that are rectangles or channels. Flagpole:The flagpole which leads to the flag should be unusually steep and last several days. Volume trend: Downward trend 71% of the time. BreakoutUpward 54% of the time.Percentage meeting price target for up/down breakouts: 64%; 47%Compute the height from the start of the price swing (point A in the measure rule figure to the right) to the end of the price swing (B) and then multiply it by the above “percentage meeting price target.” Add it (upward breakouts) to the bottom of the flag (C) or subtract it (downward breakouts) from the top of the flag (C) to get the target (D).
• #50: Price trend: Upward leading to the pattern. Price should rise by at least 30% leading to the cup. Cup duration: From 7 to 65 weeksShape: A rounded turn that looks like a cup with a handle on the right. U-shaped cup: The cup should be U-shaped, not V-shaped. Handle:The cup must have a handle on the right. Cup duration:From 7 to 65 weeks Handle duration1 week minimum but usually lasts 1 to 2 weeks. Handle: Forms in upper half of cup. Cup: Cup rims should be near the same price level.Measure the height from the right cup lip (A-- A is Right side flag) to the lowest valley (B) then multiply by 50% Add the result to the breakout price (A) to get a targetVolume shape: Cups with U-shaped volume tend to perform better post breakout.
• #52: DivergenceDivergence occurs when an indicator trends in one direction and price trends in another direction. Specifically, an indicator will make lower highs while price makes higher peaks, or the indicator will make higher valleys even as price tumbles to new lows. Divergence is a reliable trading signal, but it's not timely, meaning that price usually follows the direction of the indicator, but it make take months before it does.
• #54: +vedivergeceTrends: Draw a trendline along the price valleys and the trendline should slope downward. A trendline drawn along the indicator valleys must slope upward. Don't draw trendlines along the peaks looking for bullish divergence. Trading TipsIf the price trend is down, then look for divergence among the valleys, not the peaks. When you spot divergence, recognize that the price trend may change. This doesn't mean an immediate buy, but consider taking a position soon, especially if you receive other confirming signals.
• #55: -ve DivergenceharacteristicDiscussion Price trendUpward forming higher peaks. Indicator trendLower peaks. One monthI found that the best divergence signals in the RSI and CCI indicators are when the peaks are spaced less than 2 months apart – 1 month apart is best (daily charts only). TrendsDraw a trendline along the price peaks and it should slope upward. A trendline drawn along the indicator peaks should trend downward. Don't draw trendlines along the valleys when looking for bearish divergence.Trading TipsIf the price trend is up, then look for divergence among the peaks, not the valleys. When you spot divergence, recognize that the price trend may change. This doesn't mean an immediate sale, but you should be ready to flee.
• #56: -ve Divergence