Technical Analysis Ato Z

Introduction, Trends - Technical Analysis from A to Z

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Contents
Preface
Acknowledgments
Technical Analysis from A to Z
Terminology By Steven B. Achelis
To Learn More
Introduction

q Technical Analysis
q Price fields Search
q Charts
q

q
Support & resistance
Trends
INTRODUCTION - Trends
q Moving averages
q Indicators
Trends
q Market indicators In the preceding section, we saw how support and resistance levels can be
q Line studies
penetrated by a change in investor expectations (which results in shifts of the
supply/demand lines). This type of a change is often abrupt and "news based."
q Periodicity
q The time element In this section, we'll review "trends." A trend represents a consistent change in
q Conclusion
prices (i.e., a change in investor expectations). Trends differ from
support/resistance levels in that trends represent change, whereas
q Order the Book support/resistance levels represent barriers to change.
q Learn more about
Technical Analysis As shown in Figure 19, a rising trend is defined by successively higher
low-prices. A rising trend can be thought of as a rising support level--the bulls are
in control and are pushing prices higher.
Reference
Absolute Breadth Index
Accumulation/Distribution Figure 19
Accumulation Swing Index
Advance/Decline Line
Advance/Decline Ratio
Advancing-Declining Issues
Advancing, Declining,
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
Candlesticks, Japanese
CANSLIM
Chaikin Oscillator
Commodity Channel Index
Commodity Selection Index
Correlation Analysis
Cumulative Volume Index
Cycles
Demand Index
Detrended Price Oscillator
Directional Movement
Dow Theory
Ease of Movement Figure 20 shows a falling trend. A falling trend is defined by successively lower
Efficient Market Theory high-prices. A falling trend can be thought of as a falling resistance level--the
Elliott Wave Theory bears are in control and are pushing prices lower.
Envelopes (trading bands)
Equivolume
Fibonacci Studies Figure 20
Four Percent Model
Fourier Transform
Fundamental Analysis
Gann Angles
Herrick Payoff Index
Interest Rates
Kagi
Large Block Ratio
Linear Regression Lines
MACD
Mass Index
McClellan Oscillator
McClellan Summation Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
Negative Volume Index
New Highs-Lows
Cumulative
New Highs-New Lows
New Highs/Lows Ratio
Odd Lot Balance Index
Odd Lot Purchases/Sales
Just as prices penetrate support and resistance levels when expectations
Odd Lot Short Ratio change, prices can penetrate rising and falling trendlines. Figure 21 shows the
On Balance Volume penetration of Merck's falling trendline as investors no longer expected lower
Open Interest prices.
Open-10 TRIN
Option Analysis Note in Figure 21 how volume increased when the trendline was penetrated. This
Overbought/Oversold is an important confirmation that the previous trend is no longer intact.
Parabolic SAR
Patterns
Percent Retracement Figure 21
Performance
Point & Figure
Positive Volume Index
Price and Volume Trend
Price Oscillator
Price Rate-of-Change
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Relative Strength Index
Renko
Speed Resistance Lines
Spreads
Standard Deviation
STIX
Stochastic Oscillator
Swing Index
Three Line Break
Time Series Forecast
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
As with support and resistance levels, it is common to have traders' remorse
TRIX following the penetration of a trendline. This is illustrated in Figure 22.
Typical Price
Ultimate Oscillator
Upside/Downside Ratio
Figure 22
Upside-Downside Volume
Vertical Horizontal Filter
Volatility, Chaikin's
Volume
Volume Oscillator
Volume Rate-of-Change
Weighted Close
Williams'
Accumulation/Distribution
Williams' %R
Zig Zag
Bibliography
About the Author

Again, volume is the key to determining the significance of the penetration of a
trend. In the above example, volume increased when the trend was penetrated,
and was weak as the bulls tried to move prices back above the trendline.

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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
PREFACE
q Moving averages
q Indicators
Over the last decade I have met many of the top technical analysis "gurus" as
q Market indicators
well as shared experiences with thousands of newcomers. The common element
q Line studies I've discovered among investors who use technical analysis, regardless of their
q Periodicity expertise, is the desire to learn more.
q The time element
No single book, nor any collection of books, can provide a complete explanation
q Conclusion of technical analysis. Not only is the field too massive, covering every thing from
q Order the Book Federal Reserve reports to Fibonacci Arcs, but it is also evolving so quickly that
anything written today becomes incomplete (but not obsolete) tomorrow.
q Learn more about
Technical Analysis
Armed with the above knowledge and well aware of the myriad of technical
analysis books that are already available, I feel there is a genuine need for a
Reference concise book on technical analysis that serves the needs of both the novice and
Absolute Breadth Index veteran investor. That is what I have strived to create.
Accumulation Swing Index The first half of this book is for the newcomer. It is an introduction to technical
Advance/Decline Line analysis that presents basic concepts and terminology. The second half is a
Advance/Decline Ratio reference that is designed for anyone using technical analysis. It contains concise
Advancing-Declining Issues explanations of numerous technical analysis tools in a reference format.
Unchanged Volume When my father began using technical analysis thirty years ago, many people
Andrews' Pitchfork considered technical analysis just another 1960's adventure into the occult.
Arms Index Today, technical analysis is accepted as a viable analytical approach by most
Average True Range universities and brokerage firms. Rarely are large investments made without
Bollinger Bands reviewing the technical climate. Yet even with its acceptance, the number of
Breadth Thrust
people who actually perform technical analysis remains relatively small. It is my
Bull/Bear Ratio
hope that this book will increase the awareness and use of technical analysis,
CANSLIM
and in turn, improve the results of those who practice it.
Chaikin Oscillator
"Information is pretty thin stuff, unless mixed with experience."
Commodity Selection Index ---Clarence Day, 1920
Cycles
Demand Index
Dow Theory
Ease of Movement
Efficient Market Theory
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Acknowledgements - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ACKNOWLEDGMENTS
q Moving averages
q Indicators
The truth that no man is an island certainly holds true here. This book would not
q Market indicators
be possible without the help of thousands of analysts who have studied the
q Line studies markets and shared their results. To those from whom I have compiled this
q Periodicity information, thank you.
q The time element
There are two people who have helped so much that I want to mention them by
q Conclusion name. Without John Slauson's editorial and research assistance, this book would
q Order the Book not have been published until the next century; And Denise, my wife, who has
been an active participant in my work for more than a dozen years.
q Learn more about
Technical Analysis

Reference
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
TERMINOLOGY
q Moving averages
q Indicators
For brevity, I use the term "security" when referring to any tradable financial
q Market indicators
instrument. This includes stocks, bonds, commodities, futures, indices, mutual
q Line studies funds, options, etc. While I may imply a specific investment product (for example,
q Periodicity I may say "shares" which implies an equity) these investment concepts will work
q The time element
with any publicly traded financial instrument in which an open market exists.
q Conclusion Similarly, I intermix the terms "investing" and "trading." Typically, an investor
q Order the Book takes a long-term position while a trader takes a much shorter-term position. In
either case, the basic concepts and techniques presented in this book are equally
q Learn more about
Technical Analysis
adept.

"Words are like money; there is nothing so useless, unless when in actual use."
Reference ---Samuel Butler, 1902
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
TO LEARN MORE...
q Moving averages
q Indicators
Investors share a common desire--they want to learn more. If you'd like to receive
q Market indicators
a list of additional learning material (technical analysis books, software, and
q Line studies videos), please call my office at 800-882-3034.
q Periodicity
q The time element
q Conclusion
q Order the Book
q Learn more about
Technical Analysis

Reference
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/tolearnmore.html [5/11/2001 3:11:37 am]

Introduction - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
INTRODUCTION
q Moving averages
q Indicators
This introduction was written for investors who are new to technical analysis. It
q Market indicators
presents the basic concepts and terminology in a concise manner. If you are
q Line studies familiar with technical analysis, you will probably find the Reference the
q Periodicity appropriate starting point.
q The time element
q Conclusion
q Order the Book
q Learn more about
Technical Analysis

Reference
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Introduction, Technical Analysis - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
INTRODUCTION - Technical Analysis
q Moving averages
q Indicators
Technical analysis
q Market indicators Should I buy today? What will prices be tomorrow, next week, or next year?
q Line studies
Wouldn't investing be easy if we knew the answers to these seemingly simple
questions? Alas, if you are reading this book in the hope that technical analysis
q Periodicity has the answers to these questions, I'm afraid I have to disappoint you early--it
q The time element doesn't. However, if you are reading this book with the hope that technical
q Conclusion analysis will improve your investing, I have good news--it will!
q Order the Book
q Learn more about
Some history
Technical Analysis
The term "technical analysis" is a complicated sounding name for a very basic
approach to investing. Simply put, technical analysis is the study of prices, with
Reference charts being the primary tool.
Accumulation/Distribution The roots of modern-day technical analysis stem from the Dow Theory,
Accumulation Swing Index developed around 1900 by Charles Dow. Stemming either directly or indirectly
Advance/Decline Line from the Dow Theory, these roots include such principles as the trending nature
Advance/Decline Ratio of prices, prices discounting all known information, confirmation and divergence,
Advancing-Declining Issues volume mirroring changes in price, and support/resistance. And of course, the
Advancing, Declining, widely followed Dow Jones Industrial Average is a direct offspring of the Dow
Unchanged Volume
Theory.
Andrews' Pitchfork
Arms Index
Charles Dow's contribution to modern-day technical analysis cannot be
Average True Range
Bollinger Bands
understated. His focus on the basics of security price movement gave rise to a
Breadth Thrust
completely new method of analyzing the markets.
Bull/Bear Ratio
CANSLIM
The human element
Chaikin Oscillator
The price of a security represents a consensus. It is the price at which one
person agrees to buy and another agrees to sell. The price at which an investor is
willing to buy or sell depends primarily on his expectations. If he expects the
Cumulative Volume Index security's price to rise, he will buy it; if the investor expects the price to fall, he will
Cycles sell it. These simple statements are the cause of a major challenge in forecasting
Demand Index security prices, because they refer to human expectations. As we all know
Detrended Price Oscillator firsthand, humans are not easily quantifiable nor predictable. This fact alone will
Directional Movement keep any mechanical trading system from working consistently.
Dow Theory
Ease of Movement Because humans are involved, I am sure that much of the world's investment
Efficient Market Theory decisions are based on irrelevant criteria. Our relationships with our family, our
Elliott Wave Theory neighbors, our employer, the traffic, our income, and our previous success and
Envelopes (trading bands) failures, all influence our confidence, expectations, and decisions.
Equivolume
Fibonacci Studies Security prices are determined by money managers and home managers,
Four Percent Model students and strikers, doctors and dog catchers, lawyers and landscapers, and
Fourier Transform
the wealthy and the wanting. This breadth of market participants guarantees an
Gann Angles
element of unpredictability and excitement.
Interest Rates
Kagi
Fundamental analysis
Large Block Ratio If we were all totally logical and could separate our emotions from our investment
decisions, then, fundamental analysis the determination of price based on future
MACD
Mass Index earnings, would work magnificently. And since we would all have the same
McClellan Oscillator completely logical expectations, prices would only change when quarterly reports
McClellan Summation Index or relevant news was released. Investors would seek "overlooked" fundamental
Median Price data in an effort to find undervalued securities.
Member Short Ratio
Momentum The hotly debated "efficient market theory" states that security prices represent
Money Flow Index everything that is known about the security at a given moment. This theory
Moving Averages
concludes that it is impossible to forecast prices, since prices already reflect
New Highs-Lows
everything that is currently known about the security.
Cumulative
New Highs-New Lows
The future can be found in the past
Odd Lot Balance Index If prices are based on investor expectations, then knowing what a security should
sell for (i.e., fundamental analysis) becomes less important than knowing what
Odd Lot Short Ratio
On Balance Volume
other investors expect it to sell for. That's not to say that knowing what a security
Open Interest
should sell for isn't important--it is. But there is usually a fairly strong consensus
Open-10 TRIN of a stock's future earnings that the average investor cannot disprove.
Option Analysis
Overbought/Oversold "I believe the future is only the past again, entered through another gate."
Parabolic SAR ---Sir Arthur Wing Pinero, 1893
Patterns
Percent Retracement Technical analysis is the process of analyzing a security's historical prices in an
Performance effort to determine probable future prices. This is done by comparing current
Point & Figure price action (i.e., current expectations) with comparable historical price action to
Positive Volume Index predict a reasonable outcome. The devout technician might define this process
Price and Volume Trend as the fact that history repeats itself while others would suffice to say that we
Price Oscillator should learn from the past.
Public Short Ratio
Puts/Calls Ratio The roulette wheel
Quadrant Lines
Relative Strength, In my experience, only a minority of technicians can consistently and accurately
Comparative determine future prices. However, even if you are unable to accurately forecast
Relative Strength Index prices, technical analysis can be used to consistently reduce your risks and
Renko improve your profits.
Spreads The best analogy I can find on how technical analysis can improve your investing
Standard Deviation is a roulette wheel. I use this analogy with reservation, as gamblers have very
STIX
little control when compared to investors (although considering the actions of
Swing Index
many investors, gambling may be a very appropriate analogy).
Three Line Break
"There are two times in a man's life when he should not speculate: when he can't
Tirone Levels
afford it, and when he can."
Total Short Ratio ---Mark Twain, 1897
Trade Volume Index
Trendlines A casino makes money on a roulette wheel, not by knowing what number will
TRIX come up next, but by slightly improving their odds with the addition of a "0" and
Typical Price "00."
Ultimate Oscillator
Upside/Downside Ratio Similarly, when an investor purchases a security, he doesn't know that its price
Upside-Downside Volume will rise. But if he buys a stock when it is in a rising trend, after a minor sell off,
Vertical Horizontal Filter and when interest rates are falling, he will have improved his odds of making a
Volatility, Chaikin's profit. That's not gambling--it's intelligence. Yet many investors buy securities
Volume without attempting to control the odds.
Volume Oscillator
Volume Rate-of-Change Contrary to popular belief, you do not need to know what a security's price will be
Weighted Close in the future to make money. Your goal should simply be to improve the odds of
Williams' making profitable trades. Even if your analysis is as simple as determining the
long-, intermediate-, and short-term trends of the security, you will have gained
Williams' %R
Zig Zag
an edge that you would not have without technical analysis.
Bibliography
About the Author
Consider the chart of Merck in Figure 1 where the trend is obviously down and
there is no sign of a reversal. While the company may have great earnings
prospects and fundamentals, it just doesn't make sense to buy the security until
there is some technical evidence in the price that this trend is changing.

Figure 1

Automated trading
If we accept the fact that human emotions and expectations play a role in security
pricing, we should also admit that our emotions play a role in our decision
making. Many investors try to remove their emotions from their investing by using
computers to make decisions for them. The concept of a "HAL," the intelligent
computer in the movie 2001, is appealing.

Mechanical trading systems can help us remove our emotions from our
decisions. Computer testing is also useful to determine what has happened
historically under various conditions and to help us optimize our trading
techniques. Yet since we are analyzing a less than logical subject (human
emotions and expectations), we must be careful that our mechanical systems
don't mislead us into thinking that we are analyzing a logical entity.

That is not to say that computers aren't wonderful technical analysis tools--they
are indispensable. In my totally biased opinion, technical analysis software has
done more to level the playing field for the average investor than any other
non-regulatory event. But as a provider of technical analysis tools, I caution you
not to let the software lull you into believing markets are as logical and
predictable as the computer you use to analyze them.



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Introduction, Price Fields - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
INTRODUCTION - Price Fields
q Moving averages
q Indicators
Price Fields
q Market indicators Technical analysis is based almost entirely on the analysis of price and volume.
q Line studies
The fields which define a security's price and volume are explained below.
q Periodicity
q The time element
Open - This is the price of the first trade for the period (e.g., the first trade of the
day). When analyzing daily data, the Open is especially important as it is the
q Conclusion
consensus price after all interested parties were able to "sleep on it."
q Order the Book
q Learn more about
Technical Analysis
High - This is the highest price that the security traded during the period. It is
the point at which there were more sellers than buyers (i.e., there are always
sellers willing to sell at higher prices, but the High represents the highest price
Reference buyers were willing to pay).
Low - This is the lowest price that the security traded during the period. It is the
Advance/Decline Line point at which there were more buyers than sellers (i.e., there are always buyers
Advance/Decline Ratio willing to buy at lower prices, but the Low represents the lowest price sellers were
Advancing-Declining Issues willing to accept).
Unchanged Volume
Andrews' Pitchfork Close - This is the last price that the security traded during the period. Due to
Arms Index its availability, the Close is the most often used price for analysis. The
Average True Range relationship between the Open (the first price) and the Close (the last price) are
Bollinger Bands considered significant by most technicians. This relationship is emphasized in
Breadth Thrust candlestick charts.
Bull/Bear Ratio
CANSLIM Volume - This is the number of shares (or contracts) that were traded during
Chaikin Oscillator
the period. The relationship between prices and volume (e.g., increasing prices
accompanied with increasing volume) is important.
Cycles
Open Interest - This is the total number of outstanding contracts (i.e., those
Demand Index
that have not been exercised, closed, or expired) of a future or option. Open
Detrended Price Oscillator interest is often used as an indicator.
Dow Theory
Ease of Movement Bid - This is the price a market maker is willing to pay for a security (i.e., the
Efficient Market Theory price you will receive if you sell).
Elliott Wave Theory
Equivolume Ask - This is the price a market maker is willing to accept (i.e., the price you will
Fibonacci Studies pay to buy the security).
Four Percent Model
Fourier Transform These simple fields are used to create literally hundreds of technical tools that
Fundamental Analysis study price relationships, trends, patterns, etc.
Gann Angles
Herrick Payoff Index Not all of these price fields are available for all security types, and many quote
Interest Rates providers publish only a subset of these. Table 1 shows the typical fields that are
Kagi reported for several security types.
Large Block Ratio
MACD
Table 1
Mass Index
McClellan Oscillator Futures Mutual Funds Stocks Options
Median Price
Member Short Ratio
Open Yes No Often Yes
Momentum
Money Flow Index High Yes Closed end Yes Yes
Moving Averages
New Highs-Lows
Low Yes Closed end Yes Yes
Cumulative
New Highs-New Lows Close Yes Yes (*NAV) Yes Yes
Odd Lot Balance Index Volume Yes Closed end Yes Yes
Odd Lot Short Ratio
On Balance Volume
Open Interest Yes N/A N/A Often
Open Interest
Open-10 TRIN Bid Intraday Closed end Intraday Intraday
Option Analysis
Overbought/Oversold
Parabolic SAR
Ask Intraday Closed end Intraday Intraday
Patterns
Percent Retracement
Performance
*Net Asset Value
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Introduction, Charts - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
INTRODUCTION - Charts
q Moving averages
q Indicators
Charts
q Market indicators The foundation of technical analysis is the chart. In this case, a picture truly is
q Line studies
worth a thousand words.
q Periodicity
q The time element
Line charts
q Conclusion A line chart is the simplest type of chart. As shown in the chart of General Motors
q Order the Book in Figure 2, the single line represents the security's closing price on each day.
q Learn more about
Dates are displayed along the bottom of the chart and prices are displayed on the
Technical Analysis
side(s).

Reference
Figure 2
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Detrended Price Oscillator A line chart's strength comes from its simplicity. It provides an uncluttered, easy
to understand view of a security's price. Line charts are typically displayed using
Dow Theory
Ease of Movement
a security's closing prices.
Elliott Wave Theory
Bar charts
Equivolume A bar chart displays a security's open (if available), high, low, and closing prices.
Fibonacci Studies
Bar charts are the most popular type of security chart.
Four Percent Model
Fourier Transform
As illustrated in the bar chart in Figure 3, the top of each vertical bar represents
Gann Angles
the highest price that the security traded during the period, and the bottom of the
bar represents the lowest price that it traded. A closing "tick" is displayed on the
Interest Rates right side of the bar to designate the last price that the security traded. If opening
Kagi prices are available, they are signified by a tick on the left side of the bar.
Large Block Ratio
MACD
Figure 3
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance Volume bar chart
Point & Figure
Positive Volume Index Volume is usually displayed as a bar graph at the bottom of the chart (see Figure
Price and Volume Trend 4). Most analysts only monitor the relative level of volume and as such, a volume
Price Oscillator
scale is often not displayed.
Public Short Ratio
Puts/Calls Ratio Figure 4
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume Figure 4 displays "zero-based" volume. This means the bottom of each volume
Volume Oscillator bar represents the value of zero. However, most analysts prefer to see volume
Volume Rate-of-Change that is "relative adjusted" rather than zero-based. This is done by subtracting the
Weighted Close lowest volume that occurred during the period displayed from all of the volume
Williams'
bars. Relative adjusted volume bars make it easier to see trends in volume by
Williams' %R
ignoring the minimum daily volume.
Zig Zag
Bibliography
About the Author
Figure 5

Figure 5 displays the same volume information as in the previous chart, but this
volume is relative adjusted.

Other chart types
Security prices can also be displayed using other types of charts, such as
candlestick, Equivolume, point & figure, etc. For brevity's sake, explanations of
these charting methods appear only in Part II.



http://www.equis.com/free/taaz/intcharts.html [5/11/2001 3:12:04 am]

Introduction, Support & Resistance - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
INTRODUCTION - Support & Resistance
q Moving averages
q Indicators
Support and Resistance
q Market indicators Think of security prices as the result of a head-to-head battle between a bull (the
q Line studies
buyer) and a bear (the seller). The bulls push prices higher and the bears push
prices lower. The direction prices actually move reveals who is winning the battle.
q Periodicity
q The time element Using this analogy, consider the price action of Phillip Morris in Figure 6. During
q Conclusion
the period shown, note how each time prices fell to the $45.50 level, the bulls
(i.e., the buyers) took control and prevented prices from falling further. That
q Order the Book means that at the price of $45.50, buyers felt that investing in Phillip Morris was
q Learn more about worthwhile (and sellers were not willing to sell for less than $45.50). This type of
Technical Analysis price action is referred to as support, because buyers are supporting the price of
$45.50.
Reference
Absolute Breadth Index Figure 6
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory Similar to support, a "resistance" level is the point at which sellers take control of
Ease of Movement prices and prevent them from rising higher. Consider Figure 7. Note how each
Efficient Market Theory time prices neared the level of $51.50, sellers outnumbered buyers and
Elliott Wave Theory
prevented the price from rising.
Equivolume
Fibonacci Studies Figure 7
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
The price at which a trade takes place is the price at which a bull and bear agree
Odd Lot Short Ratio
On Balance Volume
to do business. It represents the consensus of their expectations. The bulls think
Open Interest
prices will move higher and the bears think prices will move lower.
Open-10 TRIN
Option Analysis
Support levels indicate the price where the majority of investors believe that
Overbought/Oversold prices will move higher, and resistance levels indicate the price at which a
Parabolic SAR majority of investors feel prices will move lower.
Patterns
Percent Retracement But investor expectations change with time! For a long time investors did not
Performance expect the Dow Industrials to rise above 1,000 (as shown by the heavy
Point & Figure resistance at 1,000 in Figure 8). Yet only a few years later, investors were willing
Positive Volume Index to trade with the Dow near 2,500.
Price Oscillator
Price Rate-of-Change Figure 8
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volatility, Chaikin's When investor expectations change, they often do so abruptly. Note how when
Volume prices rose above the resistance level of Hasbro Inc. in Figure 9, they did so
Volume Oscillator decisively. Note too, that the breakout above the resistance level was
Volume Rate-of-Change accompanied with a significant increase in volume.
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author

Once investors accepted that Hasbro could trade above $20.00, more investors
were willing to buy it at higher levels (causing both prices and volume to
increase). Similarly, sellers who would previously have sold when prices
approached $20.00 also began to expect prices to move higher and were no
longer willing to sell.

The development of support and resistance levels is probably the most
noticeable and reoccurring event on price charts. The penetration of
support/resistance levels can be triggered by fundamental changes that are
above or below investor expectations (e.g., changes in earnings, management,
competition, etc) or by self-fulfilling prophecy ( investors buy as they see prices
rise). The cause is not as significant as the effect--new expectations lead to new
price levels.

Figure 10 shows a breakout caused by fundamental factors. The breakout
occurred when Snapple released a higher than expected earnings report. How do
we know it was higher than expectations? By the resulting change in prices
following the report!

Figure 10

Other support/resistance levels are more emotional. For example, the DJIA had a
tough time changing investor expectations when it neared 3,000 (see Figure 11).

Figure 11

Supply and demand
There is nothing mysterious about support and resistance--it is classic supply and
demand. Remembering "Econ 101" class, supply/demand lines show what the
supply and demand will be at a given price.

The "supply" line shows the quantity (i.e., the number of shares) that sellers are
willing to supply at a given price. When prices increase, the quantity of sellers
also increases as more investors are willing to sell at these higher prices.

The "demand" line shows the number of shares that buyers are willing to buy at a
given price. When prices increase, the quantity of buyers decreases as fewer
investors are willing to buy at higher prices.

At any given price, a supply/demand chart (see Figure 12) shows how many
buyers and sellers there are. For example, the following chart shows that, at the
price of 42-1/2, there will be 10 buyers and 25 sellers.

Figure 12

Support occurs at the price where the supply line touches the left side of the chart
(e.g., 27-1/2 on the above chart). Prices can't fall below this amount, because no
sellers are willing to sell at these prices. Resistance occurs at the price where the
demand line touches the left side of the chart (e.g., 47-1/2). Prices can't rise
above this amount, because there are no buyers willing to buy at these prices.

In a free market these lines are continually changing. As investor expectations
change, so do the prices buyers and sellers feel are acceptable. A breakout
above a resistance level is evidence of an upward shift in the demand line as
more buyers become willing to buy at higher prices. Similarly, the failure of a
support level shows that the supply line has shifted downward.

The foundation of most technical analysis tools is rooted in the concept of supply
and demand. Charts of security prices give us a superb view of these forces in
action.

Traders' remorse
Following the penetration of a support/resistance level, it is common for traders to
question the new price levels. For example, after a breakout above a resistance
level, buyers and sellers may both question the validity of the new price and may
decide to sell. This creates a phenomena I refer to as "traders' remorse" where
prices return to a support/resistance level following a price breakout.

Consider the breakout of Phillip Morris in Figure 13. Note how the breakout was
followed by a correction in the price where prices returned to the resistance level.

Figure 13

The price action following this remorseful period is crucial. One of two things can
happen. Either the consensus of expectations will be that the new price is not
warranted, in which case prices will move back to their previous level; or
investors will accept the new price, in which case prices will continue to move in
the direction of the penetration.

If, following traders' remorse, the consensus of expectations is that a new higher
price is not warranted, a classic "bull trap" (or "false breakout") is created. As
shown in the Figure 14, prices penetrated the resistance level at $67.50 (luring in
a herd of bulls who expected prices to move higher), and then prices dropped
back to below the resistance level leaving the bulls holding overpriced stock.

Figure 14

Similar sentiment creates a bear trap. Prices drop below a support level long
enough to get the bears to sell (or sell short) and then bounce back above the
support level leaving the bears out of the market (see Figure 15).

Figure 15

The other thing that can happen following traders' remorse is that investors
expectations may change causing the new price to be accepted. In this case,
prices will continue to move in the direction of the penetration (i.e., up if a
resistance level was penetrated or down if a support level was penetrated). [See
Figure 16.]

Figure 16

A good way to quantify expectations following a breakout is with the volume
associated with the price breakout. If prices break through the support/resistance
level with a large increase in volume and the traders' remorse period is on
relatively low volume, it implies that the new expectations will rule (a minority of
investors are remorseful). Conversely, if the breakout is on moderate volume and
the "remorseful" period is on increased volume, it implies that very few investor
expectations have changed and a return to the original expectations (i.e., original
prices) is warranted.

Resistance becomes support
When a resistance level is successfully penetrated, that level becomes a support
level. Similarly, when a support level is successfully penetrated, that level
becomes a resistance level.

An example of resistance changing to support is shown in Figure 17. When
prices broke above the resistance level of $45.00, the level of $45.00 became the
new support level.

This is because a new "generation" of bulls who didn't buy when prices were less
than $45 (they didn't have bullish expectations then) are now anxious to buy
anytime prices return near the $45 level.

Figure 17

Similarly, when prices drop below a support level, that level often becomes a
resistance level that prices have a difficult time penetrating. When prices
approach the previous support level, investors seek to limit their losses by selling
(see Figure 18).

Review
I kept discussions of price action, investor expectations, and support/ resistance
as concise as possible. However, from my experience working with investors, I
am thoroughly convinced that most investors could significantly improve their
performance if they would pay more attention to the underlying causes effecting
security prices: investor expectations and supply/demand.

The following is a very brief review of the support/resistance concepts discussed
in this section.

Figure 18

1. A security's price represents the fair market value as agreed between
buyers (bulls) and sellers (bears).

2. Changes in price are the result of changes in investor expectations of the
security's future price.

3. Support levels occur when the consensus is that the price will not move
lower. It is the point where buyers outnumber sellers.

4. Resistance levels occur when the consensus is that the price will not move
higher. It is the point where sellers outnumber buyers.

5. The penetration of a support or resistance level indicates a change in
investor expectations and a shift in the supply/demand lines.

6. Volume is useful in determining how strong the change of expectations
really is.

7. Traders' remorse often follows the penetration of a support or resistance
level as prices retreat to the penetrated level.



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Introduction, Moving Averages - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
INTRODUCTION - Moving Averages
q Moving averages
q Indicators
Moving Averages
q Market indicators Moving averages are one of the oldest and most popular technical analysis tools.
q Line studies
This chapter describes the basic calculation and interpretation of moving
averages. Click here for Full details on moving averages.
q Periodicity
q The time element A moving average is the average price of a security at a given time. When
q Conclusion calculating a moving average, you specify the time span to calculate the average
price (e.g., 25 days).
q Order the Book
q Learn more about A "simple" moving average is calculated by adding the security's prices for the
Technical Analysis most recent "n" time periods and then dividing by "n." For example, adding the
closing prices of a security for most recent 25 days and then dividing by 25. The
result is the security's average price over the last 25 days. This calculation is
Reference done for each period in the chart.
Accumulation/Distribution Note that a moving average cannot be calculated until you have "n" time periods
of data. For example, you cannot display a 25-day moving average until the 25th
day in a chart.
Figure 23 shows a 25-day simple moving average of the closing price of
Unchanged Volume
Caterpillar.
Andrews' Pitchfork
Arms Index
Average True Range
Figure 23
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Fundamental Analysis Since the moving average in this chart is the average price of the security over
Gann Angles the last 25 days, it represents the consensus of investor expectations over the
last 25 days. If the security's price is above its moving average, it means that
Interest Rates
Kagi
investor's current expectations (i.e., the current price) are higher than their
Large Block Ratio
average expectations over the last 25 days, and that investors are becoming
Linear Regression Lines increasingly bullish on the security. Conversely, if today's price is below its
MACD moving average, it shows that current expectations are below average
Mass Index expectations over the last 25 days.
McClellan Summation Index The classic interpretation of a moving average is to use it to observe changes in
Median Price prices. Investors typically buy when a security's price rises above its moving
Member Short Ratio average and sell when the price falls below its moving average.
Momentum
Money Flow Index
Moving Averages Time periods in moving averages "Buy" arrows were drawn on the
Negative Volume Index chart in Figure 24 when Aflac's price rose above its 200-day moving average;
New Highs-Lows "sell" arrows were drawn when Aflac's price fell below its 200-day moving
Cumulative average. (To simplify the chart, I did not label the brief periods where Aflac
New Highs-New Lows crossed its moving average for only a few days.)
Odd Lot Purchases/Sales Figure 24
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation Long-term trends are often isolated using a 200-day moving average. You can
STIX also use computer software to automatically determine the optimum number of
Stochastic Oscillator time periods. Ignoring commissions, higher profits are usually found using shorter
Swing Index moving averages.
Three Line Break
Tirone Levels Merits
Total Short Ratio
Trade Volume Index The merit of this type of moving average system (i.e., buying and selling when
Trendlines prices penetrate their moving average) is that you will always be on the "right"
TRIX side of the market--prices cannot rise very much without the price rising above its
Typical Price average price. The disadvantage is that you will always buy and sell late. If the
Ultimate Oscillator trend doesn't last for a significant period of time, typically twice the length of the
moving average, you'll lose money. This is illustrated in Figure 25.
Volatility, Chaikin's Figure 25
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author

Traders' remorse
Moving averages often demonstrate traders' remorse. As shown in Figure 26, it is
very common for a security to penetrate its long-term moving average, and then
return to its average before continuing on its way.

Figure 26

You can also use moving averages to smooth erratic data. The charts in Figure
27 show the 13 year history of the number of stocks making new highs (upper
chart) and a 10-week moving average of this value (lower chart). Note how the
moving average makes it easier to view the true trend of the data.

Figure 27



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Introduction, Indicators - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
INTRODUCTION - Indicators
q Moving averages
q Indicators
Indicators
q Market indicators An indicator is a mathematical calculation that can be applied to a security's price
q Line studies
and/or volume fields. The result is a value that is used to anticipate future
changes in prices.
q Periodicity
q The time element A moving average fits this definition of an indicator: it is a calculation that can be
q Conclusion
performed on a security's price to yield a value that can be used to anticipate
future changes in prices.
q Order the Book
q Learn more about The following chapters (see page ) contain numerous examples of indicators. I'll
Technical Analysis briefly review one simple indicator here, the Moving Average Convergence
Divergence (MACD).
Reference
Accumulation/Distribution MACD
Advance/Decline Line The MACD is calculated by subtracting a 26-day moving average of a security's
Advance/Decline Ratio price from a 12-day moving average of its price. The result is an indicator that
Advancing-Declining Issues oscillates above and below zero.
Unchanged Volume When the MACD is above zero, it means the 12-day moving average is higher
Andrews' Pitchfork than the 26-day moving average. This is bullish as it shows that current
Arms Index expectations (i.e., the 12-day moving average) are more bullish than previous
Average True Range
expectations (i.e., the 26-day average). This implies a bullish, or upward, shift in
Bollinger Bands
Breadth Thrust
the supply/demand lines. When the MACD falls below zero, it means that the
Bull/Bear Ratio
12-day moving average is less than the 26-day moving average, implying a
Candlesticks, Japanese bearish shift in the supply/demand lines.
CANSLIM
Chaikin Oscillator Figure 28 shows Autozone and its MACD. I labeled the chart as "Bullish" when
Commodity Channel Index the MACD was above zero and "Bearish" when it was below zero. I also
Commodity Selection Index displayed the 12- and 26-day moving averages on the price chart.
Cycles
Figure 28
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
A 9-day moving average of the MACD (not of the security's price) is usually
Momentum
plotted on top of the MACD indicator. This line is referred to as the "signal" line.
Money Flow Index The signal line anticipates the convergence of the two moving averages (i.e., the
Moving Averages movement of the MACD toward the zero line).
New Highs-Lows The chart in Figure 29 shows the MACD (the solid line) and its signal line (the
Cumulative dotted line). "Buy" arrows were drawn when the MACD rose above its signal line;
New Highs-New Lows "sell" arrows were drawn when the MACD fell below its signal line.
Odd Lot Purchases/Sales Figure 29
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
Let's consider the rational behind this technique. The MACD is the difference
STIX between two moving averages of price. When the shorter-term moving average
Stochastic Oscillator rises above the longer-term moving average (i.e., the MACD rises above zero), it
Swing Index means that investor expectations are becoming more bullish (i.e., there has been
Three Line Break an upward shift in the supply/demand lines). By plotting a 9-day moving average
Time Series Forecast of the MACD, we can see the changing of expectations (i.e., the shifting of the
Tirone Levels supply/demand lines) as they occur.
Total Short Ratio
Trade Volume Index
Trendlines Leading versus lagging indicators
TRIX
Typical Price Moving averages and the MACD are examples of trend following, or "lagging,"
Ultimate Oscillator indicators. [See Figure 30.] These indicators are superb when prices move in
Upside/Downside Ratio relatively long trends. They don't warn you of upcoming changes in prices, they
Upside-Downside Volume simply tell you what prices are doing (i.e., rising or falling) so that you can invest
Vertical Horizontal Filter accordingly. Trend following indicators have you buy and sell late and, in
Volatility, Chaikin's exchange for missing the early opportunities, they greatly reduce your risk by
Volume
keeping you on the right side of the market.
Volume Oscillator
Weighted Close Figure 30
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author

As shown in Figure 31, trend following indicators do not work well in sideways
markets.

Figure 31

Another class of indicators are "leading" indicators. These indicators help you
profit by predicting what prices will do next. Leading indicators provide greater
rewards at the expense of increased risk. They perform best in sideways,
"trading" markets.

Leading indicators typically work by measuring how "overbought" or "oversold" a
security is. This is done with the assumption that a security that is "oversold" will
bounce back. [See Figure 32.]

Figure 32

What type of indicators you use, leading or lagging, is a matter of personal
preference. It has been my experience that most investors (including me) are
better at following trends than predicting them. Thus, I personally prefer trend
following indicators. However, I have met many successful investors who prefer
leading indicators.

Trending prices versus trading prices
There have been several trading systems and indicators developed that
determine if prices are trending or trading. The approach is that you should use
lagging indicators during trending markets and leading indicators during trading
markets. While it is relatively easy to determine if prices are trending or trading, it
is extremely difficult to know if prices will trend or trade in the future. [See Figure
33.]

Figure 33

Divergences
A divergence occurs when the trend of a security's price doesn't agree with the
trend of an indicator. Many of the examples in subsequent chapters (see page )
demonstrate divergences.

The chart in Figure 34 shows a divergence between Whirlpool and its 14-day CCI
(Commodity Channel Index). [See page .] Whirlpool's prices were making new
highs while the CCI was failing to make new highs. When divergences occur,
prices usually change direction to confirm the trend of the indicator as shown in
Figure 34. This occurs because indicators are better at gauging price trends than
the prices themselves.

Figure 34



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Introduction, Market Indicators - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
INTRODUCTION - Market Indicators
q Moving averages
q Indicators
Market Indicators
q Market indicators All of the technical analysis tools discussed up to this point were calculated using
q Line studies
a security's price (e.g., high, low, close, volume, etc). There is another group of
technical analysis tools designed to help you gauge changes in all securities
q Periodicity within a specific market. These indicators are usually referred to as "market
q The time element indicators," because they gauge an entire market, not just an individual security.
q Conclusion Market indicators typically analyze the stock market, although they can be used
for other markets (e.g., futures).
q Order the Book
q Learn more about While the data fields available for an individual security are limited to its open,
Technical Analysis high, low, close, volume (see page ), and sparse financial reports, there are
numerous data items available for the overall stock market. For example, the
number of stocks that made new highs for the day, the number of stocks that
Reference increased in price, the volume associated with the stocks that increased in price,
etc. Market indicators cannot be calculated for an individual security because the
required data is not available.
Market indicators add significant depth to technical analysis, because they
contain much more information than price and volume. A typical approach is to
Advancing, Declining, use market indicators to determine where the overall market is headed and then
Unchanged Volume use price/volume indicators to determine when to buy or sell an individual
Andrews' Pitchfork security. The analogy being "all boats rise in a rising tide," it is therefore much
Arms Index less risky to own stocks when the stock market is rising.
Average True Range
Bollinger Bands
Breadth Thrust Categories of market indicators
Bull/Bear Ratio
Candlesticks, Japanese Market indicators typically fall into three categories: monetary, sentiment, and
CANSLIM momentum.
Chaikin Oscillator
Commodity Channel Index Monetary indicators concentrate on economic data such as interest rates. They
Commodity Selection Index help you determine the economic environment in which businesses operate.
Correlation Analysis These external forces directly affect a business' profitability and share price.
Cycles Examples of monetary indicators are interest rates, the money supply, consumer
Demand Index and corporate debt, and inflation. Due to the vast quantity of monetary indicators,
Detrended Price Oscillator I only discuss a few of the basic monetary indicators in this book.
Dow Theory Sentiment indicators focus on investor expectations--often before those
Ease of Movement expectations are discernible in prices. With an individual security, the price is
Efficient Market Theory often the only measure of investor sentiment available. However, for a large
Elliott Wave Theory
market such as the New York Stock Exchange, many more sentiment indicators
Equivolume
are available. These include the number of odd lot sales (i.e., what are the
Fibonacci Studies
smallest investors doing?), the put/call ratio (i.e., how many people are buying
Four Percent Model puts versus calls?), the premium on stock index futures, the ratio of bullish versus
Fourier Transform bearish investment advisors, etc.
Gann Angles "Contrarian" investors use sentiment indicators to determine what the majority of
Herrick Payoff Index investors expect prices to do; they then do the opposite. The rational being, if
Interest Rates everybody agrees that prices will rise, then there probably aren't enough
Kagi investors left to push prices much higher. This concept is well proven--almost
Large Block Ratio everyone is bullish at market tops (when they should be selling) and bearish at
Linear Regression Lines market bottoms (when they should be buying).
MACD
Mass Index The third category of market indicators, momentum, show what prices are
McClellan Oscillator actually doing, but do so by looking deeper than price. Examples of momentum
McClellan Summation Index indicators include all of the price/volume indicators applied to the various market
Median Price
indices (e.g., the MACD of the Dow Industrials), the number of stocks that made
Member Short Ratio
Momentum
new highs versus the number of stocks making new lows, the relationship
Money Flow Index
between the number of stocks that advanced in price versus the number that
Moving Averages declined, the comparison of the volume associated with increased price with the
Negative Volume Index volume associated with decreased price, etc.
New Highs-Lows
Cumulative Given the above three groups of market indicators, we have insight into:
New Highs-New Lows
New Highs/Lows Ratio 1. The external monetary conditions affecting security prices. This tells us
Odd Lot Balance Index what security prices should do.
Odd Lot Short Ratio 2. The sentiment of various sectors of the investment community. This tells
On Balance Volume us what investors expect prices to do.
Open Interest
Open-10 TRIN 3. The current momentum of the market. This tells us what prices are actually
Option Analysis doing.
Overbought/Oversold
Parabolic SAR Figure 35 shows the Prime Rate along with a 50-week moving average. "Buy"
Patterns arrows were drawn when the Prime Rate crossed below its moving average
Percent Retracement (interest rates were falling) and "sell" arrows were drawn when the Prime Rate
Performance crossed above its moving average (interest rates were rising). This chart
Point & Figure illustrates the intense relationship between stock prices and interest rates.
Price Oscillator Figure 35
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Upside-Downside Volume Figure 36 shows a 10-day moving average of the Put/Call Ratio (a sentiment
Vertical Horizontal Filter indicator). I labeled the chart with "buy" arrows each time the moving average
Volatility, Chaikin's rose above 85.0. This is the level where investors were extremely bearish and
Volume expected prices to decline. You can see that each time investors became
Volume Oscillator extremely bearish, prices actually rose.
Weighted Close
Williams' Figure 36
Williams' %R
Zig Zag
Bibliography
About the Author

Figure 37 shows a 50-week moving average (a momentum indicator) of the S&P
500. "Buy" arrows were drawn when the S&P rose above its 50-week moving
average; "sell" arrows were drawn when the S&P fell below its moving average.
You can see how this momentum indicator caught every major market move.

Figure 37

Figure 38 merges the preceding monetary and momentum charts. The chart is
labeled "Bullish" when the Prime Rate was below its 50-week moving average
(meaning that interest rates were falling) and when the S&P was above its
50-week moving average.

Figure 38

The chart in Figure 38 is a good example of the roulette metaphor. You don't
need to know exactly where prices will be in the future--you simply need to
improve your odds. At any given time during the period shown in this chart, I
couldn't have told you where the market would be six months later. However, by
knowing that the odds favor a rise in stock prices when interest rates are falling
and when the S&P is above its 50-week moving average, and by limiting long
positions (i.e., buying) to periods when both of these indicators are bullish, you
could dramatically reduce your risks and increase your chances of making a
profit.



http://www.equis.com/free/taaz/intmarketindicators.html [5/11/2001 3:12:46 am]

Introduction, Line Studies - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
INTRODUCTION - Line Studies
q Moving averages
q Indicators
Line Studies
q Market indicators Line studies are technical analysis tools that consist of lines drawn on top of a
q Line studies
security's price and/or indicator. These include the support, resistance, and
trendline concepts already discussed.
q Periodicity
q The time element Figure 39 illustrates several line studies. These and numerous additional studies
q Conclusion
are explained in later chapters.
q Order the Book
q Learn more about
Figure 39
Technical Analysis

Reference
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/intlinestudies.html [5/11/2001 3:12:51 am]

Introduction, Periodicity - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
INTRODUCTION - Periodicity
q Moving averages
q Indicators
Periodicity
q Market indicators Regardless of the "periodicity" of the data in your charts (i.e., hourly, daily,
q Line studies
weekly, monthly, etc), the basic principles of technical analysis endure. Consider
the following charts of a Swiss Franc contract shown in Figures 40, 41, and 42.
q Periodicity
The time element
q
Figure 40
q Conclusion
q Order the Book
q Learn more about
Technical Analysis

Reference
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Figure 41
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Figure 42
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio Typically, the shorter the periodicity, the more difficult it is to predict and profit
Puts/Calls Ratio from changes in prices. The difficulty associated with shorter periodicities is
Quadrant Lines compounded by the fact that you have less time to make your decisions.
Relative Strength,
Comparative "While we stop and think, we often miss our opportunity."
Relative Strength Index ---Publilius Syrus, 1st century B.C.
Renko
Speed Resistance Lines Opportunities exist in any time frame. But I have rarely met a successful
Spreads short-term trader who wasn't also successful a long-term investor. And I have
Standard Deviation met many investors who get caught by the grass-is-greener syndrome believing
STIX that shorter-and-shorter time periods is the secret to making money--it isn't.
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/intperiodicity.html [5/11/2001 3:13:02 am]

Introduction, The Time Element - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
INTRODUCTION - The Time Element
q Moving averages
q Indicators
The Time Element
q Market indicators The discussion that began on page explained the open, high, low, and closing
q Line studies
price fields. This section presents the time element.
q Periodicity Much of technical analysis focuses on changes in prices over time. Consider the
q The time element effect of time in the following charts, each of which show a security's price
q Conclusion
increase from $25 to around $45.
q Order the Book Figure 43 shows that Merck's price increased consistently over a 12-month time
q Learn more about period. This chart shows that investors continually reaffirmed the security's
Technical Analysis upward movement.

Reference Figure 43
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory As shown in Figure 44, Disney's price also moved from around $25 to $45, but it
Ease of Movement did so in two significant moves. This shows that on two occasions investors
Efficient Market Theory believed the security's price would move higher. But following the first bidding
Elliott Wave Theory war, a period of time had to pass before investors accepted the new prices and
were ready to move them higher.
Equivolume
Fibonacci Studies
Four Percent Model Figure 44
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest The pause after the rapid increase in Disney's price is a typical phenomena.
Open-10 TRIN People have a difficult time accepting new prices suddenly, but will accept them
Option Analysis over time. What once looked expensive may one day look cheap as expectations
Overbought/Oversold evolve.
Parabolic SAR
Patterns This is an interesting aspect of point and figure charts, because point and figure
Percent Retracement charts totally disregard the passage of time and only display changes in price.
Performance
Point & Figure
Positive Volume Index A Sample Approach
Price Oscillator There are many technical analysis tools in this book. The most difficult part of
Price Rate-of-Change technical analysis may be deciding which tools to use! Here is an approach you
Public Short Ratio might try.
Puts/Calls Ratio
Quadrant Lines 1. Determine the overall market condition.
Relative Strength, If you are trading equity-based securities (e.g., stocks), determine the
Comparative trend in interest rates, the trend of the New York Stock Exchange, and of
investor sentiment (e.g., read the newspaper). The object is to determine
Renko
the overall trend of the market.
Spreads
Standard Deviation
2. Pick the securities.
STIX
I suggest that you pick the securities using either a company or industry
Stochastic Oscillator you are familiar with, or the recommendation of a trusted analyst (either
Swing Index fundamental or technical).
Three Line Break
Time Series Forecast 3. Determine the overall trend of the security.
Tirone Levels Plot a 200-day (or 39-week) moving average of the security's closing price.
Total Short Ratio The best buying opportunities occur when the security has just risen above
Trade Volume Index this long-term moving average.
Trendlines
TRIX 4. Pick your entry points.
Typical Price Buy and sell using your favorite indicator. However, only take positions
Ultimate Oscillator that agree with overall market conditions.
Upside-Downside Volume Much of your success in technical analysis will come from experience. The goal
Vertical Horizontal Filter isn't to find the holy grail of technical analysis, it is to reduce your risks (e.g., by
Volatility, Chaikin's trading with the overall trend) while capitalizing on opportunities (e.g., using your
Volume
favorite indicator to time your trades). As you gain experience, you will make
Volume Oscillator
better, more informed, and more profitable investments.
Weighted Close
Williams'
"A fool sees not the same tree that a wise man sees."
--William Blake, 1790
Williams' %R
Zig Zag
Bibliography
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http://www.equis.com/free/taaz/intthetimeelement.html [5/11/2001 3:13:09 am]

Introduction, Conclusion - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
INTRODUCTION - Conclusion
q Moving averages
q Indicators
Conclusion
q Market indicators This concludes the Introduction to Technical Analysis. I suggest you click on
q Line studies
reference to continue to explore this exciting, and potentially profitable, pursuit.
q Periodicity A fitting conclusion to an introduction on technical analysis is a list of lessons I
q The time element have learned, both from others and the hard way.
q Conclusion
q Don't compound your losses by averaging down (i.e., don't keep buying
q Order the Book additional shares at lower prices). It is tempting to think that a loss "doesn't
q Learn more about count" until the position is closed--but it does!
Technical Analysis
q Anytime you own a security, ask yourself if you would buy it today. If you
wouldn't buy it, you should consider selling it.
Reference
Absolute Breadth Index q Don't get distracted by others' investment prowess. Most investors only
Accumulation/Distribution discuss their successes, threatening your focus and confidence.
Advance/Decline Line q Wise investments aren't made with Ouija boards, they are made using
Advance/Decline Ratio logical approaches that minimize risks and maximize opportunities.
Advancing, Declining, q Master the basics. Most investors spend their time looking for easy money
Unchanged Volume (which is not an easy search) instead of learning the key factors to security
Andrews' Pitchfork
prices--supply and demand.
Arms Index
Average True Range
"Opportunities flit by while we sit regretting the chances we have lost..."
Bollinger Bands
Breadth Thrust
---Jerome K. Jerome, 1889
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/intconclusion.html [5/11/2001 3:13:11 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
REFERENCE
q Moving averages
q Indicators
This Online Volume is a concise reference to a vast array of technical indicators
q Market indicators
and line studies.
q Line studies
q Periodicity The discussion on each tool includes an overview, an explanation of its
interpretation, and an example of the indicator or line study in action. When
q The time element
space has permitted, I have also included a step-by-step explanation of the
q Conclusion relevant calculations.
q Order the Book
Most of these techniques can be applied to any type of security, including stocks,
q Learn more about bonds, options, futures, mutual funds, and indices.
Technical Analysis

Reference
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/reference.html [5/11/2001 3:13:14 am]

Absolute Breadth Index - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ABSOLUTE BREADTH INDEX
q Moving averages
q Indicators
Overview
The Absolute Breadth Index ("ABI") is a market momentum indicator that was
q Market indicators
developed by Norman G. Fosback.
q Line studies
q Periodicity The ABI shows how much activity, volatility, and change is taking place on the
New York Stock Exchange while ignoring the direction prices are headed.
q The time element
q Conclusion
q Order the Book
Interpretation
q Learn more about
Technical Analysis You can think of the ABI as an "activity index." High readings indicate market
activity and change, while low readings indicate lack of change.
Reference In Fosback's book, Stock Market Logic, he indicates that historically, high values
typically lead to higher prices three to twelve months later. Fosback found that a
highly reliable variation of the ABI is to divide the weekly ABI by the total issues
Advance/Decline Line traded. A ten-week moving average of this value is then calculated. Readings
Advance/Decline Ratio above 40% are very bullish and readings below 15% are bearish.
Unchanged Volume
Andrews' Pitchfork Example
Arms Index
Average True Range The following chart shows the S&P 500 and a 5-week moving average of the ABI.
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Strong rallies occurred every time the ABI's moving average rose above 310.
Gann Angles
Interest Rates Calculation
Kagi
Large Block Ratio The Absolute Breadth Index is calculated by taking the absolute value of the
Linear Regression Lines difference between NYSE Advancing Issues and NYSE Declining Issues.
MACD
Mass Index
Median Price Absolute value (i.e., ABS) means "regardless of sign." Thus, the absolute value
Member Short Ratio of -100 is 100 and the absolute value of +100 is also 100.
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/absbrdtind.html [5/11/2001 3:13:21 am]

Accumulation/Distribution - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ACCUMULATION/DISTRIBUTION
q Moving averages
q Indicators
Overview
q Market indicators The Accumulation/Distribution is a momentum indicator that associates changes
q Line studies
in price and volume. The indicator is based on the premise that the more volume
that accompanies a price move, the more significant the price move.
q Periodicity
q The time element
q Conclusion Interpretation
q Order the Book
q Learn more about
The Accumulation/Distribution is really a variation of the more popular On
Technical Analysis Balance Volume indicator. Both of these indicators attempt to confirm changes in
prices by comparing the volume associated with prices.
Reference When the Accumulation/Distribution moves up, it shows that the security is being
Absolute Breadth Index accumulated, as most of the volume is associated with upward price movement.
Accumulation/Distribution When the indicator moves down, it shows that the security is being distributed, as
most of the volume is associated with downward price movement.
Divergences between the Accumulation/Distribution and the security's price imply
Advancing, Declining, a change is imminent. When a divergence does occur, prices usually change to
Unchanged Volume confirm the Accumulation/Distribution. For example, if the indicator is moving up
Andrews' Pitchfork and the security's price is going down, prices will probably reverse.
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust Example
Bull/Bear Ratio
Candlesticks, Japanese The following chart shows Battle Mountain Gold and its
CANSLIM Accumulation/Distribution.
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi Battle Mountain's price diverged as it reached new highs in late July while the
Large Block Ratio indicator was falling. Prices then corrected to confirm the indicator's trend.
MACD
Mass Index
Calculation
Median Price A portion of each day's volume is added or subtracted from a cumulative total.
Member Short Ratio
The nearer the closing price is to the high for the day, the more volume added to
Momentum
Money Flow Index
the cumulative total. The nearer the closing price is to the low for the day, the
Moving Averages
more volume subtracted from the cumulative total. If the close is exactly between
Negative Volume Index the high and low prices, nothing is added to the cumulative total.
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/accumdistr.html [5/11/2001 3:13:27 am]

Accumulation Swing Index - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ACCUMULATION SWING INDEX
q Moving averages
q Indicators
Overview
The Accumulation Swing Index is a cumulative total of the Swing Index. The
q Market indicators
Accumulation Swing Index was developed by Welles Wilder.
q Line studies
q Periodicity
q The time element Interpretation
q Conclusion
Mr. Wilder said, "Somewhere amidst the maze of Open, High, Low and Close
q Order the Book prices is a phantom line that is the real market." The Accumulation Swing Index
q Learn more about attempts to show this phantom line. Since the Accumulation Swing Index
Technical Analysis attempts to show the "real market," it closely resembles prices themselves. This
allows you to use classic support/resistance analysis on the Index itself. Typical
analysis involves looking for breakouts, new highs and lows, and divergences.
Reference
Accumulation/Distribution Wilder notes the following characteristics of the
Advance/Decline Line Accumulation Swing Index:
Advancing-Declining Issues q It provides a numerical value that quantifies price swings.
Unchanged Volume q It defines short-term swing points.
Andrews' Pitchfork
Arms Index q It cuts through the maze of high, low, and close prices and indicates the
Average True Range real strength and direction of the market.
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
Candlesticks, Japanese Example
CANSLIM
Chaikin Oscillator The following chart shows Corn and its Accumulation Swing Index.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
Linear Regression Lines You can see that the breakouts of the price trendlines labeled "A" and "B" were
MACD confirmed by breakouts of the Accumulation Swing Index trendlines labeled "A'"
Mass Index and "B'."
Median Price
Member Short Ratio Calculation
Momentum
Money Flow Index The Accumulation Swing Index is a cumulative total of the Swing Index. The
Moving Averages Swing Index and the Accumulation Swing Index require opening prices.
New Highs-Lows Step-by-step instructions on calculating the Swing Index are provided in Wilder's
Cumulative book, New Concepts In Technical Trading Systems.
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/accumswingind.html [5/11/2001 3:13:31 am]

Advance/Decline Line - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ADVANCE/DECLINE LINE
q Moving averages
q Indicators
Overview
q Market indicators The Advance/Decline Line ("A/D Line") is undoubtedly the most widely used
q Line studies
measure of market breadth. It is a cumulative total of the Advancing-Declining
Issues indicator. When compared to the movement of a market index (e.g., Dow
q Periodicity
Jones Industrials, S&P 500, etc) the A/D Line has proven to be an effective
q The time element gauge of the stock market's strength.
q Conclusion
q Order the Book
q Learn more about Interpretation
Technical Analysis
The A/D Line is helpful when measuring overall market strength. When more
stocks are advancing than declining, the A/D Line moves up (and vice versa).
Reference
Absolute Breadth Index Many investors feel that the A/D Line shows market strength better than more
Accumulation/Distribution commonly used indices such as the Dow Jones Industrial Average ("DJIA") or the
S&P 500 Index. By studying the trend of the A/D Line you can see if the market is
in a rising or falling trend, if the trend is still intact, and how long the current trend
has prevailed.
Unchanged Volume
Another way to use the A/D Line is to look for a divergence between the DJIA (or
Andrews' Pitchfork a similar index) and the A/D Line. Often, an end to a bull market can be forecast
Arms Index when the A/D Line begins to round over while the DJIA is still trying to make new
Average True Range highs. Historically, when a divergence develops between the DJIA and the A/D
Bollinger Bands Line, the DJIA has corrected and gone the direction of the A/D Line.
Breadth Thrust
Bull/Bear Ratio A military analogy is often used when discussing the relationship between the
Candlesticks, Japanese A/D Line and the DJIA. The analogy is that trouble looms when the generals lead
CANSLIM (e.g., the DJIA is making new highs) and the troops refuse to follow (e.g., the A/D
Chaikin Oscillator Line fails to make new highs).
Cycles
Example
Demand Index The following chart shows the DJIA and the A/D Line.
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
The DJIA was making new highs during the 12 months leading up to the 1987
Member Short Ratio
Momentum
crash. During this same period, the A/D Line was failing to reach new highs. This
Money Flow Index
type of divergence, where the generals lead and the troops refuse to follow,
Moving Averages usually results in the generals retreating in defeat as happened in 1987.
New Highs-Lows
Cumulative Calculation
New Highs-New Lows
New Highs/Lows Ratio The A/D Line is calculated by subtracting the number of stocks that declined in
Odd Lot Balance Index price for the day from the number of stocks that advanced, and then adding this
value to a cumulative total.
Odd Lot Short Ratio
On Balance Volume
Table 2 shows the calculation of the A/D line.
Open Interest
Open-10 TRIN
Option Analysis Table 2
Overbought/Oversold
Parabolic SAR
Patterns
Date Advancing Declining A-D A/D Line
Percent Retracement 02/15/94 1198 882 316 316
Performance
Point & Figure 02/16/94 1183 965 218 534
Price and Volume Trend 02/17/94 882 1251 -369 165
Price Oscillator
Price Rate-of-Change 02/18/94 706 1411 -705 -540
Public Short Ratio
Puts/Calls Ratio 02/22/94 1139 1003 136 -404
Quadrant Lines
Relative Strength,
Because the A/D Line always starts at zero, the numeric value of the A/D Line is
Comparative
of little importance. What is important is the slope and pattern of the A/D Line.
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/advdecline.html [5/11/2001 3:13:36 am]

Advance/Decline Ratio - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ADVANCE/DECLINE RATIO
q Moving averages
q Indicators
Overview
q Market indicators The Advance/Decline Ratio ("A/D Ratio") shows the ratio of advancing issues to
q Line studies
declining issues. It is calculated by dividing the number of advancing issues by
the number of declining issues.
q Periodicity
q The time element
q Order the Book
q Learn more about
The A/D Ratio is similar to the Advancing-Declining Issues in that it displays
Technical Analysis market breadth. But, where the Advancing-Declining Issues subtracts the
advancing/declining values, the A/D Ratio divides the values. The advantage of
the Ratio is that it remains constant regardless of the number of issues that are
Reference traded on the New York Stock Exchange (which has steadily increased).
Accumulation/Distribution A moving average of the A/D Ratio is often used as an overbought/oversold
Accumulation Swing Index indicator. The higher the value, the more "excessive" the rally and the more likely
Advance/Decline Line a correction. Likewise, low readings imply an oversold market and suggest a
technical rally.
Keep in mind, however, that markets that appear to be extremely overbought or
Unchanged Volume
Andrews' Pitchfork
oversold may stay that way for some time. When investing using overbought and
Arms Index
oversold indicators, it is wise to wait for the prices to confirm your belief that a
Average True Range change is due before placing your trades.
Bollinger Bands
Breadth Thrust Day-to-day fluctuations of the Advance/Decline Ratio are often eliminated by
Bull/Bear Ratio smoothing the ratio with a moving average.
CANSLIM
Chaikin Oscillator
Commodity Channel Index Example
Correlation Analysis The following chart shows the S&P 500 and a 15-day moving average of the A/D
Cumulative Volume Index Ratio.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
McClellan Oscillator You can see that prices usually declined after entering the overbought level
McClellan Summation Index above 1.25 ("sell" arrows) and that they usually rallied after entering the oversold
Median Price level below 0.90 ("buy" arrows).
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
Calculation
The A/D Ratio is calculated by dividing the number of stocks that advanced in
New Highs-Lows
Cumulative
price for the day by the number of stocks that declined.
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume Table 3 shows the calculation of the A/D Ratio.
Open Interest
Open-10 TRIN
Option Analysis
Table 3
Overbought/Oversold
Parabolic SAR Date Advancing Declining A/D Ratio
Patterns
Percent Retracement 02/15/94 1198 882 1.3583
Performance
Point & Figure 02/16/94 1183 965 1.2259
02/17/94 882 1251 0.7050
Price Oscillator
02/18/94 706 1411 0.5004
Public Short Ratio
02/22/94 1139 1003 1.1356
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/advdecratio.html [5/11/2001 3:13:41 am]

Advancing-Declining Issues - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ADVANCING-DECLINING ISSUES
q Moving averages
q Indicators
Overview
q Market indicators The Advancing-Declining Issues is a market momentum indicator which shows
q Line studies
the difference between stocks listed on the New York Stock Exchange that
advanced in price minus those that declined. As of this writing, about 2,500
q Periodicity issues trade each day on the NYSE.
q The time element
q Conclusion
The difference between the number of advancing and declining issues is the
foundation of many market breadth indicators. These indicators include the
q Order the Book Advance/Decline Line, Advance/Decline Ratio, Absolute Breadth Index, Breadth
q Learn more about Thrust, McClellan Oscillator and Summation Index. Indicators that use advancing
Technical Analysis and declining issues in their calculations are called market breadth indicators.

Reference
Absolute Breadth Index Interpretation
Accumulation Swing Index The Advancing-Declining Issues indicator shows the difference between the
Advance/Decline Line number of advancing issues and the number of declining issues. Plotted by itself,
Advance/Decline Ratio this indicator is helpful to determine daily market strength. Strong up days
Advancing-Declining Issues generally show readings of more than +1,000. Very weak days have readings of
less than -1,000.
Unchanged Volume
Andrews' Pitchfork
I prefer to plot a 5-to-40 day exponential moving average of the
Arms Index
Average True Range
Advancing-Declining Issues rather than the daily values themselves. The moving
Bollinger Bands
average creates an excellent short-term overbought/oversold indicator. Both the
Breadth Thrust Over-bought/-Oversold indicator and the McClellan Oscillator are created using
Bull/Bear Ratio moving averages of advancing minus declining issues.
CANSLIM
Chaikin Oscillator
Commodity Channel Index Example
Correlation Analysis The following chart shows the DJIA and a 40-day moving average of the
Cumulative Volume Index Advancing-Declining Issues indicator.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
McClellan Oscillator I drew "buy" arrows when the moving average rose above -50 and "sell" arrows
when it fell below 125. Normally, I would use ±100, but the strong up-trend during
Median Price
Member Short Ratio
this period caused the indicator to have an upward bias.
Momentum
Money Flow Index
Moving Averages
Calculation
New Highs-Lows
Cumulative
The Advancing-Declining Issues is calculated simply by subtracting the number
New Highs-New Lows
of declining issues from the number of advancing issues.
Odd Lot Short Ratio The following table shows the calculation of the Advancing-Declining Issues.
On Balance Volume
Open Interest
Open-10 TRIN Table 4
Option Analysis
Overbought/Oversold Date Advancing Declining A/D
Parabolic SAR
Patterns 02/15/94 1198 882 316
Percent Retracement
Performance 02/16/94 1183 965 218
Point & Figure
Positive Volume Index 02/17/94 882 1251 -369
Price Oscillator 02/18/94 706 1411 -705
Public Short Ratio 02/22/94 1139 1003 136
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/advdecissues.html [5/11/2001 3:13:48 am]

Advancing, Declining, Unchanged Volume - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ADVANCING, DECLINING,
q Moving averages UNCHANGED VOLUME
q Indicators
q Market indicators Overview
q Line studies
Advancing, declining, and unchanged volume are all market momentum
q Periodicity
indicators. They reflect movement on the New York Stock exchange in millions of
q The time element shares.
q Conclusion
Advancing volume is the total volume for all securities that advanced in price.
q Order the Book Declining volume is the total volume for all securities that declined in price. And
q Learn more about similarly, unchanged volume is the total volume for all securities that were
Technical Analysis unchanged in price.

Reference
Absolute Breadth Index Interpretation
Accumulation Swing Index Numerous indicators have been developed using up and down volume indicators.
Advance/Decline Line These indicators include the Cumulative Volume Index, Negative Volume Index,
Advance/Decline Ratio Positive Volume Index, and the Upside-Downside Ratio. Charts of the advancing
or declining volume can be used to look for volume divergences (where
Unchanged Volume
advancing volume increases but the market falls) to see if selling pressure is
Andrews' Pitchfork
waning, to view daily trends, etc.
Arms Index
Average True Range
Due to the erratic fluctuations in advancing and declining volume, I suggest you
Bollinger Bands smooth the indicators with a 3- to 10-day moving average.
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Example
Chaikin Oscillator
Commodity Channel Index The following chart shows the S&P 500 and a 10-day moving average of
Commodity Selection Index advancing volume.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
A bearish divergence developed as prices tried to rally (trendline "A") while the
Mass Index advancing volume was declining (trendline "B"). If you only looked at the S&P
McClellan Oscillator 500 you might think the market was gaining strength. The Advancing Volume
McClellan Summation Index showed the true picture and prices were forced to correct.
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/advdecvol.html [5/11/2001 3:13:53 am]

Andrews' Pitchfork - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ANDREW'S PITCHFORK
q Moving averages
q Indicators
Overview
q Market indicators Andrews' Pitchfork is a line study consisting of three parallel trendlines based on
q Line studies
three points you select. This tool was developed by Dr. Alan Andrews.
q Periodicity
q The time element
q Conclusion
Interpretation
q Order the Book The interpretation of a pitchfork is based on normal trendline support and
q Learn more about resistance principles.
Technical Analysis

Reference Example
Accumulation/Distribution The following chart of Xerox shows an Andrews' Pitchfork.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Directional Movement The pitchfork was displayed by selecting the three points shown. You can see
Dow Theory
how prices tended to "walk along" the trendlines.
Ease of Movement
Elliott Wave Theory
Equivolume
Caculation
Fibonacci Studies
The first trendline begins at the left-most point selected (either a major peak or
Four Percent Model
Fourier Transform
trough) and is drawn so it passes directly between the two right-most points. This
line is the "handle" of the pitchfork. The second and third trendlines are then
Gann Angles drawn beginning at the two right-most points (a major peak and a major trough)
Herrick Payoff Index and are drawn parallel to the first line. These lines are the "tines" of the pitchfork.
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/andrewspitch.html [5/11/2001 3:14:00 am]

Arms Index - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ARMS INDEX
q Moving averages
q Indicators
Overview
q Market indicators The Arms Index is a market indicator that shows the relationship between the
q Line studies
number of stocks that increase or decrease in price (advancing/declining issues)
and the volume associated with stocks that increase or decrease in price
q Periodicity (advancing/declining volume). It is calculated by dividing the Advance/Decline
q The time element Ratio by the Upside/Downside Ratio.
q Conclusion
q Order the Book
The Arms Index was developed by Richard Arms in 1967. Over the years, the
index has been referred to by a number of different names. When Barron's
q Learn more about published the first article on the indicator in 1967, they called it the Short-term
Technical Analysis Trading Index. It has also been known as TRIN (an acronym for TRading INdex),
MKDS, and STKS.
Reference
Interpretation
The Arms Index is primarily a short-term trading tool. The Index shows whether
volume is flowing into advancing or declining stocks. If more volume is associated
Advancing, Declining, with advancing stocks than declining stocks, the Arms Index will be less than 1.0;
Unchanged Volume if more volume is associated with declining stocks, the Index will be greater than
Andrews' Pitchfork 1.0.
Arms Index
Average True Range The Index is usually smoothed with a moving average. I suggest using a 4-day
Bollinger Bands moving average for short-term analysis, a 21-day moving average for
Breadth Thrust intermediate-term, and a 55-day moving average for longer-term analysis.
Bull/Bear Ratio
Candlesticks, Japanese Normally, the Arms Index is considered bullish when it is below 1.0 and bearish
CANSLIM when it is above 1.0. However, the Index seems to work most effectively as an
Chaikin Oscillator overbought/oversold indicator. When the indicator drops to extremely overbought
Commodity Channel Index levels, it is foretelling a selling opportunity. When it rises to extremely oversold
Commodity Selection Index levels, a buying opportunity is approaching.
Cumulative Volume Index What constitutes an "extremely" overbought or oversold level depends on the
Cycles
length of the moving average used to smooth the indicator and on market
Demand Index
conditions. Table 5 shows typical overbought and oversold levels.
Dow Theory Table 5
Ease of Movement
Elliott Wave Theory
Moving Average Overbought Oversold
Envelopes (trading bands) 4-day 0.70 1.25
Equivolume
Fibonacci Studies 21-day 0.85 1.10
Four Percent Model
Fourier Transform 55-day 0.90 1.05
Gann Angles
Interest Rates
Kagi
Example
Large Block Ratio The following chart contains a 21-day moving average of the Arms Index and the
Linear Regression Lines New York Stock Exchange Index.
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Horizontal lines are drawn at the oversold level of 1.08 and at the overbought
Performance level of 0.85. I drew "buy" arrows when the Arms Index peaked above 1.08 and
Point & Figure "sell" arrows when the Index bottomed below 0.85. In most of the cases the
Positive Volume Index arrows occur at, or one day before, significant changes in price.
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Calculation
Quadrant Lines The Arms Index is calculated by first dividing the number of stocks that advanced
Relative Strength, in price by the number of stocks that declined in price to determine the
Comparative Advance/Decline Ratio. Next, the volume of advancing stocks is divided by the
Relative Strength Index volume of declining stocks to determine the Upside/Downside Ratio. Finally, the
Renko
Advance/Decline Ratio is divided by the Upside/Downside Ratio.
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/armsindex.html [5/11/2001 3:14:06 am]

Average True Range - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
AVERAGE TRUE RANGE
q Moving averages
q Indicators
Overview
q Market indicators The Average True Range ("ATR") is a measure of volatility. It was introduced by
q Line studies
Welles Wilder in his book, New Concepts in Technical Trading Systems, and has
since been used as a component of many indicators and trading systems.
q Periodicity
q The time element
Conclusion
q
Interpretation
q Order the Book
q Learn more about Wilder has found that high ATR values often occur at market bottoms following a
Technical Analysis "panic" sell-off. Low Average True Range values are often found during extended
sideways periods, such as those found at tops and after consolidation periods.
Reference The Average True Range can be interpreted using the same techniques that are
Absolute Breadth Index used with the other volatility indicators. Refer to the discussion on Standard
Accumulation/Distribution Deviation for additional information on volatility interpretation.
Example
Unchanged Volume
Andrews' Pitchfork
The following chart shows McDonald's and its Average True Range.
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume This is a good example of high volatility as prices bottom (points "A" and "A'") and
Fibonacci Studies
low volatility as prices consolidate prior to a breakout (points "B" and "B'").
Four Percent Model
Fourier Transform
Gann Angles Calculation
Interest Rates The True Range indicator is the greatest of the following:
Kagi
Large Block Ratio q The distance from today's high to today's low.
MACD q The distance from yesterday's close to today's high.
Mass Index
McClellan Oscillator q The distance from yesterday's close to today's low.
Median Price The Average True Range is a moving average (typically 14-days) of the True
Member Short Ratio Ranges.
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/avertrurang.html [5/11/2001 3:14:10 am]

Bollinger Bands - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
BOLLINGER BANDS
q Moving averages
q Indicators
Overview
q Market indicators Bollinger Bands are similar to moving average envelopes. The difference
q Line studies between Bollinger Bands and envelopes is envelopes are plotted at a fixed
percentage above and below a moving average, whereas Bollinger Bands are
q Periodicity
plotted at standard deviation levels above and below a moving average. Since
q The time element standard deviation is a measure of volatility, the bands are self-adjusting:
q Conclusion widening during volatile markets and contracting during calmer periods.
q Order the Book
Bollinger Bands were created by John Bollinger.
q Learn more about
Technical Analysis

Interpretation
Reference
Absolute Breadth Index Bollinger Bands are usually displayed on top of security prices, but they can be
Accumulation/Distribution displayed on an indicator. These comments refer to bands displayed on prices.
Advance/Decline Line As with moving average envelopes, the basic interpretation of Bollinger Bands is
that prices tend to stay within the upper- and lower-band. The distinctive
characteristic of Bollinger Bands is that the spacing between the bands varies
Unchanged Volume
based on the volatility of the prices. During periods of extreme price changes
Andrews' Pitchfork (i.e., high volatility), the bands widen to become more forgiving. During periods of
Arms Index stagnant pricing (i.e., low volatility), the bands narrow to contain prices.
Average True Range
Bollinger Bands Mr. Bollinger notes the following characteristics of Bollinger Bands.
Breadth Thrust q Sharp price changes tend to occur after the bands tighten, as volatility
Bull/Bear Ratio lessens.
CANSLIM q When prices move outside the bands, a continuation of the current trend is
Chaikin Oscillator implied.
q Bottoms and tops made outside the bands followed by bottoms and tops
made inside the bands call for reversals in the trend.
Cumulative Volume Index q A move that originates at one band tends to go all the way to the other
Cycles band. This observation is useful when projecting price targets.
Demand Index
Dow Theory Example
Ease of Movement
Efficient Market Theory The following chart shows Bollinger Bands on Exxon's prices.
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
The Bands were calculated using a 20-day exponential moving average and are
spaced two deviations apart.
The bands were at their widest when prices were volatile during April. They
Odd Lot Short Ratio narrowed when prices entered a consolidation period later in the year. The
On Balance Volume narrowing of the bands increases the probability of a sharp breakout in prices.
Open Interest The longer prices remain within the narrow bands the more likely a price
Open-10 TRIN breakout.
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns Calculation
Percent Retracement
Performance Bollinger Bands are displayed as three bands. The middle band is a normal
Point & Figure moving average. In the following formula, "n" is the number of time periods in the
Positive Volume Index moving average (e.g., 20 days).
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
The upper band is the same as the middle band, but it is shifted up by the
Renko
number of standard deviations (e.g., two deviations). In this next formula, "D" is
the number of standard deviations.
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index The lower band is the moving average shifted down by the same number of
Trendlines standard deviations (i.e., "D").
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Volume Rate-of-Change Mr. Bollinger recommends using "20" for the number of periods in the moving
Weighted Close
average, calculating the moving average using the "simple" method (as shown in
Williams'
the formula for the middle band), and using 2 standard deviations. He has also
Williams' %R
found that moving averages of less then 10 periods do not work very well.
Zig Zag
Bibliography
About the Author



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Breadth Thrust - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
BREADTH THRUST
q Moving averages
q Indicators
Overview
q Market indicators The Breadth Thrust indicator is a market momentum indicator. It was developed
q Line studies
by Dr. Martin Zweig. The Breadth Thrust is calculated by dividing a 10-day
exponential moving average of the number of advancing issues, by the number of
q Periodicity advancing plus declining issues.
q The time element
q Conclusion
q Order the Book Interpretation
q Learn more about
Technical Analysis A "Breadth Thrust" occurs when, during a 10-day period, the Breadth Thrust
indicator rises from below 40% to above 61.5%. A "Thrust" indicates that the
stock market has rapidly changed from an oversold condition to one of strength,
Reference but has not yet become overbought.
Accumulation/Distribution According to Dr. Zweig, there have only been fourteen Breadth Thrusts since
Accumulation Swing Index 1945. The average gain following these fourteen Thrusts was 24.6% in an
Advance/Decline Line average time-frame of eleven months. Dr. Zweig also points out that most bull
Advance/Decline Ratio markets begin with a Breadth Thrust.
Unchanged Volume
Andrews' Pitchfork Example
Arms Index
Average True Range The following chart shows the S&P 500 and the Breadth Thrust indicator.
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform Horizontal lines are drawn on the Breadth Thrust indicator at 40.0% and 61.5%.
Fundamental Analysis Remember that a Thrust occurs when the indicator moves from below 40% to
Gann Angles above 61.5% during a 10 day period.
Interest Rates On December 18, 1984, I wrote the following comment regarding the Breadth
Kagi Thrust indicator in a software manual:
Large Block Ratio
Linear Regression Lines "At the time this discussion on the Breadth Thrust is being written (12/18/84), the
MACD
NYSE has gained only 1.6% since the 'Thrust.' If the market fails to go higher in
Mass Index
the next six to twelve months, it will be the first false signal generated by the
Breadth Thrust indicator in 39 years! With historical average gains of almost 25%,
Median Price we feel the odds are in our favor when we go with the Thrust."
Member Short Ratio
Momentum As shown in the example, the NYSE did in fact go higher in the ensuing months.
Money Flow Index Twelve months after the Thrust occurred the NYSE was up 21.6%. Twenty-one
Moving Averages months after the Thrust occurred, the NYSE was up a whopping 51%. Trust the
Negative Volume Index next thrust...
New Highs-Lows
Cumulative
New Highs-New Lows
New Highs/Lows Ratio Calculation
The Breadth Thrust is a 10-day simple moving average of the following:
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/breadthrust.html [5/11/2001 3:14:20 am]

Bull/Bear Ratio - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
BULL/BEAR RATIO
q Moving averages
q Indicators
Overview
q Market indicators Each week a poll of investment advisors is taken and published by Investor's
q Line studies
Intelligence of New Rochelle, New York. Investment advisors are tracked as to
whether they are bullish, bearish, or neutral on the stock market. The Bull/Bear
q Periodicity Ratio shows the relationship between the bullish and bearish advisors.
q The time element
q Conclusion
q Learn more about
Technical Analysis The Bull/Bear Ratio is a market sentiment indicator. Dr. Martin Zweig sums up
sentiment indicators in his book Winning On Wall Street by saying, "Beware of
the crowd when the crowd is too one-sided." Extreme optimism on the part of the
Reference public and even professionals almost always coincides with market tops. Extreme
Absolute Breadth Index pessimism almost always coincides with market bottoms.
Accumulation Swing Index High readings of the Bull/Bear Ratio are bearish (there are too many bulls) and
Advance/Decline Line low readings are bullish (there are not enough bulls). In almost every case,
Advance/Decline Ratio extremely high or low readings have coincided with market tops or bottoms.
Advancing-Declining Issues Historically, readings above 60% have indicated extreme optimism (which is
bearish for the market) and readings below 40% have indicated extreme
Unchanged Volume
Andrews' Pitchfork
pessimism (which is bullish for the market).
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Example
Bull/Bear Ratio
The following chart shows the Bull/Bear Ratio and the S&P 500.
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
Linear Regression Lines "Buy" arrows were drawn on the S&P 500 when the advisors were extremely
MACD
bearish and "sell" arrows were drawn when advisors were extremely bullish.
Mass Index
McClellan Oscillator Calculation
Median Price The Bull/Bear Ratio is calculated by dividing the number of bullish advisors by the
Member Short Ratio number of bullish plus bearish advisors. The number of neutral advisors is
Momentum ignored.
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/bullbearatio.html [5/11/2001 3:14:25 am]

Japanese Candlesticks - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
CANDLESTICKS, JAPANESE
q Moving averages
q Indicators
Overview
q Market indicators In the 1600s, the Japanese developed a method of technical analysis to analyze
q Line studies
the price of rice contracts. This technique is called candlestick charting. Steven
Nison is credited with popularizing candlestick charting and has become
q Periodicity recognized as the leading expert on their interpretation.
q The time element
q Conclusion
Candlestick charts display the open, high, low, and closing prices in a format
similar to a modern-day bar-chart, but in a manner that extenuates the
q Order the Book relationship between the opening and closing prices. Candlestick charts are
q Learn more about simply a new way of looking at prices, they don't involve any calculations.
Technical Analysis
Each candlestick represents one period (e.g., day) of data. Figure 45 displays the
elements of a candle.
Reference
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform Interpretation
Gann Angles I have met investors who are attracted to candlestick charts by their
Herrick Payoff Index mystique--maybe they are the "long forgotten Asian secret" to investment
Interest Rates analysis. Other investors are turned-off by this mystique--they are only charts,
Kagi right? Regardless of your feelings about the heritage of candlestick charting, I
Large Block Ratio strongly encourage you to explore their use. Candlestick charts dramatically
Linear Regression Lines illustrate changes in the underlying supply/demand lines.
MACD
Mass Index Because candlesticks display the relationship between the open, high, low, and
McClellan Oscillator closing prices, they cannot be displayed on securities that only have closing
prices, nor were they intended to be displayed on securities that lack opening
Median Price
Member Short Ratio
prices. If you want to display a candlestick chart on a security that does not have
Momentum
opening prices, I suggest that you use the previous day's closing prices in place
Money Flow Index of opening prices. This technique can create candlestick lines and patterns that
Moving Averages are unusual, but valid.
New Highs-Lows The interpretation of candlestick charts is based primarily on patterns. The most
Cumulative popular patterns are explained below.
New Highs-New Lows
New Highs/Lows Ratio Bullish Patterns
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN Long white (empty) line. This is a bullish line. It occurs when
Option Analysis
prices open near the low and close significantly higher near the
Overbought/Oversold
period's high.
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio Hammer. This is a bullish line if it occurs after a significant
Puts/Calls Ratio downtrend. If the line occurs after a significant up-trend, it is
Quadrant Lines called a Hanging Man. A Hammer is identified by a small real
Relative Strength,
body (i.e., a small range between the open and closing prices)
Comparative
and a long lower shadow (i.e., the low is significantly lower than
Renko
the open, high, and close). The body can be empty or filled-in.
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Time Series Forecast Piercing line. This is a bullish pattern and the opposite of a
Tirone Levels dark cloud cover. The first line is a long black line and the
Total Short Ratio second line is a long white line. The second line opens lower
Trade Volume Index
than the first line's low, but it closes more than halfway above
Trendlines
TRIX
the first line's real body.
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Volume Rate-of-Change Bullish engulfing lines. This pattern is strongly bullish if it
Weighted Close occurs after a significant downtrend (i.e., it acts as a reversal
Williams' pattern). It occurs when a small bearish (filled-in) line is
Accumulation/Distribution engulfed by a large bullish (empty) line.
Williams' %R
Zig Zag
Bibliography
About the Author

Morning star. This is a bullish pattern signifying a potential
bottom. The "star" indicates a possible reversal and the bullish
(empty) line confirms this. The star can be empty or filled-in.

Bullish doji star. A "star" indicates a reversal and a doji
indicates indecision. Thus, this pattern usually indicates a
reversal following an indecisive period. You should wait for a
confirmation (e.g., as in the morning star, above) before trading
a doji star. The first line can be empty or filled in.

Bearish Patterns

Long black (filled-in) line. This is a bearish line. It occurs
when prices open near the high and close significantly lower
near the period's low.

Hanging Man. These lines are bearish if they occur after a
significant uptrend. If this pattern occurs after a significant
downtrend, it is called a Hammer. They are identified by small
real bodies (i.e., a small range between the open and closing
prices) and a long lower shadow (i.e., the low was significantly
lower than the open, high, and close). The bodies can be empty
or filled-in.

Dark cloud cover. This is a bearish pattern. The pattern is
more significant if the second line's body is below the center of
the previous line's body (as illustrated).

Bearish engulfing lines. This pattern is strongly bearish if it
occurs after a significant up-trend (i.e., it acts as a reversal
pattern). It occurs when a small bullish (empty) line is engulfed
by a large bearish (filled-in) line.

Evening star. This is a bearish pattern signifying a potential
top. The "star" indicates a possible reversal and the bearish
(filled-in) line confirms this. The star can be empty or filled-in.

Doji star. A star indicates a reversal and a doji indicates
indecision. Thus, this pattern usually indicates a reversal
following an indecisive period. You should wait for a
confirmation (e.g., as in the evening star illustration) before
trading a doji star.

Shooting star. This pattern suggests a minor reversal when it
appears after a rally. The star's body must appear near the low
price and the line should have a long upper shadow.

Reversal Patterns

Long-legged doji. This line often signifies a turning point. It
occurs when the open and close are the same, and the range
between the high and low is relatively large.

Dragon-fly doji. This line also signifies a turning point. It occurs
when the open and close are the same, and the low is
significantly lower than the open, high, and closing prices.

Gravestone doji. This line also signifies a turning point. It
occurs when the open, close, and low are the same, and the
high is significantly higher than the open, low, and closing
prices.

Star. Stars indicate reversals. A star is a line with a small real
body that occurs after a line with a much larger real body, where
the real bodies do not overlap. The shadows may overlap.

Doji star. A star indicates a reversal and a doji indicates
indecision. Thus, this pattern usually indicates a reversal
following an indecisive period. You should wait for a
confirmation (e.g., as in the evening star illustration) before
trading a doji star.

Neutral Patterns

Spinning tops. These are neutral lines. They occur when the
distance between the high and low, and the distance between
the open and close, are relatively small.

Doji. This line implies indecision. The security opened and
closed at the same price. These lines can appear in several
different patterns.

Double doji lines (two adjacent doji lines) imply that a forceful
move will follow a breakout from the current indecision.

Harami ("pregnant" in English). This pattern indicates a
decrease in momentum. It occurs when a line with a small body
falls within the area of a larger body.

In this example, a bullish (empty) line with a long body is
followed by a weak bearish (filled-in) line. This implies a
decrease in the bullish momentum.

Harami cross. This pattern also indicates a decrease in
momentum. The pattern is similar to a harami, except the
second line is a doji (signifying indecision).

Example
The following chart of Corn illustrates several Japanese candlestick patterns and
principles.

You can see that advancing prices are usually accompanied with empty lines
(prices opened low and closed higher) and that declines are accompanied with
filled-in lines (prices opened high and closed lower).

Bearish engulfing lines occurred at points "A" and "B" (and prices subsequently
moved lower). Bullish white lines occurred at points "1," "2," and "3" (as prices
moved higher).



http://www.equis.com/free/taaz/candlesticks.html [5/11/2001 3:14:35 am]

CANSLIM - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
CANSLIM
q Moving averages
q Indicators
Overview
q Market indicators CANSLIM is an acronym for a stock market investment method developed by
q Line studies
William O'Neil. O'Neil is the founder and chairman of Investor's Business Daily, a
national business newspaper. He also heads an investment research
q Periodicity organization, William O'Neil & Company, Inc.
q The time element
q Conclusion
Drawing from his study of the greatest money-making stocks from 1953 to 1985,
O'Neil developed a set of common characteristics that each of these stocks
q Order the Book possessed. The key characteristics to focus on are captured in the acronym
q Learn more about CANSLIM.
Technical Analysis
C urrent quarterly earnings per share
A nnual earnings growth
Reference
Absolute Breadth Index N ew products, New Management, New Highs
S hares outstanding
Advance/Decline Line L eading industry
Advancing-Declining Issues I nstitutional sponsorship
Advancing, Declining, M arket direction
Unchanged Volume
Andrews' Pitchfork
Arms Index Although not strictly a technical analysis tool, the CANSLIM approach combines
Average True Range worthy technical and fundamental concepts. The CANSLIM approach is covered
Bollinger Bands in detail in O'Neil's book, How To Make Money In Stocks.
Breadth Thrust
Bull/Bear Ratio
CANSLIM Interpretation
Chaikin Oscillator
Commodity Channel Index The following text summarizes each of the seven components of the CANSLIM
Commodity Selection Index method.
Cycles Current Quarterly Earnings
Demand Index
Detrended Price Oscillator Earnings per share ("EPS") for the most recent quarter should be up at least 20%
Directional Movement when compared to the same quarter for the previous year (e.g., first quarter of
Dow Theory 1993 to the first quarter of 1994).
Ease of Movement
Elliott Wave Theory Annual Earnings Growth
Equivolume Earnings per share over the last five years should be increasing at the rate of at
Fibonacci Studies least 15% per year. Preferably, the EPS should increase each year. However, a
Four Percent Model single year set-back is acceptable if the EPS quickly recovers and moves back
Fourier Transform into new high territory.
Gann Angles
Herrick Payoff Index New Products, New Management, New Highs
Interest Rates
Kagi A dramatic increase in a stock's price typically coincides with something "new."
Large Block Ratio This could be a new product or service, a new CEO, a new technology, or even
Linear Regression Lines new high stock prices.
MACD
Mass Index One of O'Neil's most surprising conclusions from his research is contrary to what
McClellan Oscillator many investors feel to be prudent. Instead of adhering to the old stock market
McClellan Summation Index maxim, "buy low and sell high," O'Neil would say, "buy high and sell higher."
Median Price
O'Neil's research concluded that the ideal time to purchase a stock is when it
Member Short Ratio
Momentum
breaks into new high territory after going through a two to 15 month consolidation
Money Flow Index
period. Some of the most dramatic increases follow such a breakout, due
Moving Averages possibly to the lack of resistance (i.e., sellers).
New Highs-Lows
Cumulative
Shares Outstanding
New Highs-New Lows
More than 95% of the stocks in O'Neil's study of the greatest stock market
winners had less than 25 million shares outstanding. Using the simple principles
Odd Lot Purchases/Sales of supply and demand, restricting the shares outstanding forces the supply line to
Odd Lot Short Ratio shift upward which results in higher prices.
On Balance Volume
Open Interest A huge amount of buying (i.e., demand) is required to move a stock with 400
Open-10 TRIN million shares outstanding. However, only a moderate amount of buying is
Option Analysis required to propel a stock with only four to five million shares outstanding
Overbought/Oversold (particularly if a large amount is held by corporate insiders).
Parabolic SAR
Patterns
Percent Retracement Leader
Performance
Point & Figure Although there is never a "satisfaction guaranteed" label attached to a stock,
Positive Volume Index O'Neil found that you could significantly increase your chances of a profitable
Price and Volume Trend investment if you purchase a leading stock in a leading industry.
Price Oscillator
Price Rate-of-Change He also found that winning stocks are usually outperforming the majority of
Public Short Ratio stocks in the overall market as well.
Puts/Calls Ratio
Quadrant Lines
Relative Strength, Institutional Sponsorship
Comparative
Relative Strength Index The biggest source of supply and demand comes from institutional buyers (e.g.,
Renko mutual funds, banks, insurance companies, etc). A stock does not require a large
Speed Resistance Lines number of institutional sponsors, but institutional sponsors certainly give the stock
Spreads a vote of approval. As a rule of thumb, O'Neil looks for stocks that have at least 3
Standard Deviation
to 10 institutional sponsors with better-than-average performance records.
STIX
However, too much sponsorship can be harmful. Once a stock has become
Swing Index
Three Line Break
"institutionalized" it may be too late. If 70 to 80 percent of a stock's outstanding
shares are owned by institutions, the well may have run dry. The result of
Tirone Levels excessive institutional ownership can translate into excessive selling if bad news
Total Short Ratio strikes.
Trade Volume Index
Trendlines O'Neil feels the ideal time to purchase a stock is when it has just become
TRIX discovered by several quality institutional sponsors, but before it becomes so
Typical Price popular that it appears on every institution's hot list.
Ultimate Oscillator
Upside-Downside Volume Market Direction
Volatility, Chaikin's This is the most important element in the formula. Even the best stocks can lose
Volume money if the general market goes into a slump. Approximately seventy-five
Volume Oscillator percent of all stocks move with the general market. This means that you can pick
Volume Rate-of-Change stocks that meet all the other criteria perfectly, yet if you fail to determine the
Weighted Close direction of the general market, your stocks will probably perform poorly.
Williams'
Accumulation/Distribution Market indicators are designed to help you determine the conditions of the overall
Williams' %R market. O'Neil says, "Learn to interpret a daily price and volume chart of the
Zig Zag
market averages. If you do, you can't get too far off the track. You really won't
Bibliography
About the Author
need much else unless you want to argue with the trend of the market."



http://www.equis.com/free/taaz/canslim.html [5/11/2001 3:14:38 am]

Chaikin Oscillator - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
CHAIKIN OSCILLATOR
q Moving averages
q Indicators
Overview
q Market indicators Inspired by the prior work of Joe Granville and Larry Williams, Marc Chaikin
q Line studies
developed a new volume indicator, extending the work done by his predecessors.
The Chaikin Oscillator is a moving average oscillator based on the
q Periodicity Accumulation/Distribution indicator.
q The time element
q Conclusion
q Learn more about
Technical Analysis The following discussion of volume accumulation/distribution interpretation,
written by Marc Chaikin, is reprinted here with his permission:
Reference
"Technical analysis of both market averages and individual stocks
must include volume studies in order to give the technician a true
Accumulation/Distribution picture of the internal dynamics of a given market. Volume analysis
Accumulation Swing Index helps in identifying internal strengths and weaknesses that exist
Advance/Decline Line under the cover of price action. Very often, volume divergences
Advance/Decline Ratio versus price movement are the only clues to an important reversal
Advancing-Declining Issues that is about to take place. While volume has always been
Advancing, Declining, mentioned by technicians as important, little effective volume work
Unchanged Volume was done until Joe Granville and Larry Williams began to look at
Andrews' Pitchfork volume versus price in the late 1960s in a more creative way.
Arms Index
Average True Range For many years it had been accepted that volume and price
Bollinger Bands normally rose and fell together, but when this relationship changed,
Breadth Thrust
the price action should be examined for a possible change of trend.
Bull/Bear Ratio
The Granville OBV concept which views the total volume on an up
CANSLIM
day as accumulation and the total volume on a down day as
Chaikin Oscillator distribution is a decent one, but much too simplistic to be of value.
Commodity Channel Index The reason is that there are too many important tops and bottoms,
Commodity Selection Index both short-term and intermediate-term, where OBV confirms the
Correlation Analysis price extreme. However, when an OBV line gives a divergence
Cumulative Volume Index signal versus a price extreme, it can be a valuable technical signal
Cycles and usually triggers a reversal in price.
Demand Index
Detrended Price Oscillator Larry Williams took the OBV concept and improved on it. In order to
Directional Movement determine whether there was accumulation or distribution in the
Dow Theory market or an individual stock on a given day, Granville compared
Ease of Movement the closing price to the previous close, whereas Williams compared
the closing price to the opening price. He [Williams] created a
Elliott Wave Theory
cumulative line by adding a percentage of total volume to the line if
Equivolume
the close was higher than the opening and, subtracting a
Fibonacci Studies percentage of the total volume if the close was lower than its
Four Percent Model opening price. The accumulation/distribution line improved results
Fourier Transform dramatically over the classic OBV approach to volume divergences.
Gann Angles Williams then took this one step further in analyzing the Dow Jones
Herrick Payoff Index Industrials by creating an oscillator of the accumulation/distribution
Interest Rates line for even better buy and sell signals. In the early 1970s,
Kagi however, the opening price for stocks was eliminated from the daily
Large Block Ratio newspaper and Williams' formula became difficult to compute
Linear Regression Lines without many daily calls to a stockbroker with a quote machine.
MACD Because of this void, I created the Chaikin Oscillator substituting
Mass Index
the average price of the day for Williams' opening and took the
approach one step further by applying the oscillator to stocks and
Median Price
commodities. The Chaikin Oscillator is an excellent tool for
Member Short Ratio generating buy and sell signals when its action is compared to price
Momentum movement. I believe it is a significant improvement over the work
Money Flow Index that preceded it.
Moving Averages
Negative Volume Index The premise behind my oscillator is three-fold. The first premise is
New Highs-Lows that if a stock or market average closes above its midpoint for the
Cumulative day (as defined by [high + low] / 2), then there was accumulation on
New Highs-New Lows that day. The closer a stock or average closes to its high, the more
New Highs/Lows Ratio accumulation there was. Conversely, if a stock closes below its
Odd Lot Balance Index midpoint for the day, there was distribution on that day. The closer a
Odd Lot Purchases/Sales stock closes to its low, the more distribution there was.
Odd Lot Short Ratio
On Balance Volume The second premise is that a healthy advance is accompanied by
Open Interest
rising volume and a strong volume accumulation. Since volume is
Open-10 TRIN
Option Analysis
the fuel that powers rallies, it follows that lagging volume on rallies
Overbought/Oversold
is a sign of less fuel available to move stocks higher.
Parabolic SAR
Patterns
Conversely, declines are usually accompanied by low volume, but
Percent Retracement end with panic-like liquidation on the part of institutional investors.
Performance Thus, we look for a pickup in volume and then lower-lows on
Point & Figure reduced volume with some accumulation before a valid bottom can
Positive Volume Index develop.
Price Oscillator The third premise is that by using the Chaikin Oscillator, you can
Price Rate-of-Change monitor the flow of volume into and out of the market. Comparing
Public Short Ratio this flow to price action can help identify tops and bottoms, both
Puts/Calls Ratio short-term and intermediate-term.
Quadrant Lines
Relative Strength, Since no technical approach works all the time, I suggest using the
Comparative oscillator along with other technical indicators to avoid problems. I
Relative Strength Index favor using a price envelope around a 21-day moving average and
Renko
an overbought/oversold oscillator together with the Chaikin
Spreads Oscillator for the best short and intermediate-term technical signals.
Standard Deviation
STIX The most important signal generated by the Chaikin Oscillator
Stochastic Oscillator occurs when prices reach a new high or new low for a swing,
Swing Index particularly at an overbought or oversold level, and the oscillator
Three Line Break fails to exceed its previous extreme reading and then reverses
Time Series Forecast direction.
Tirone Levels
Total Short Ratio 1. Signals in the direction of the intermediate-term trend are
Trade Volume Index more reliable than those against the trend.
Trendlines
TRIX 2. A confirmed high or low does not imply any further price
Typical Price action in that direction. I view that as a non-event.
Ultimate Oscillator
Upside/Downside Ratio A second way to use the Chaikin Oscillator is to view a change of
Upside-Downside Volume direction in the oscillator as a buy or sell signal, but only in the
Vertical Horizontal Filter direction of the trend. For example, if we say that a stock that is
above its 90-day moving average of price is in an uptrend, then an
Volume
Volume Oscillator
upturn of the oscillator while in negative territory would constitute a
buy signal only if the stock were above its 90-day moving
Weighted Close average--not below it.
Williams'
Accumulation/Distribution A downturn of the oscillator while in positive territory (above zero)
Williams' %R would be a sell signal if the stock were below its 90-day moving
Zig Zag average of closing prices."
Bibliography
About the Author

Example
The following chart shows Eastman Kodak and the Chaikin Oscillator. Bearish
divergences (where prices increased to new highs while the Oscillator was
falling) occurred at points "A" and "B." These divergences were warnings of the
sell-offs that followed.

Calculation
The Chaikin Oscillator is created by subtracting a 10-period exponential moving
average of the Accumulation/Distribution Line from a 3-period exponential moving
average of the Accumulation/Distribution Line.



http://www.equis.com/free/taaz/chaikinosc.html [5/11/2001 3:14:47 am]

Commodity Channel Index - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
COMMODITY CHANNEL INDEX
q Moving averages
q Indicators
Overview
q Market indicators The Commodity Channel Index ("CCI") measures the variation of a security's
q Line studies
price from its statistical mean. High values show that prices are unusually high
compared to average prices whereas low values indicate that prices are
q Periodicity unusually low. Contrary to its name, the CCI can be used effectively on any type
q The time element of security, not just commodities.
q Conclusion
The CCI was developed by Donald Lambert.
q Order the Book
q Learn more about
Technical Analysis
Interpretation
Reference There are two basic methods of interpreting the CCI: looking for divergences and
Absolute Breadth Index as an overbought/oversold indicator.
Accumulation Swing Index q A divergence occurs when the security's prices are making new highs
Advance/Decline Line while the CCI is failing to surpass its previous highs. This classic
Advance/Decline Ratio divergence is usually followed by a correction in the security's price.
Advancing, Declining, q The CCI typically oscillates between ±100. To use the CCI as an
Unchanged Volume overbought/oversold indicator, readings above +100 imply an overbought
Andrews' Pitchfork
condition (and a pending price correction) while readings below -100 imply
Arms Index
Average True Range
an oversold condition (and a pending rally).
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
Example
CANSLIM
Chaikin Oscillator
The following chart shows the British Pound and its 14-day CCI. A bullish
divergence occurred at point "A" (prices were declining as the CCI was
Commodity Selection Index advancing). Prices subsequently rallied. A bearish divergence occurred at point
Correlation Analysis "B" (prices were advancing while the CCI was declining). Prices corrected. Note
Cumulative Volume Index too, that each of these divergences occurred at extreme levels (i.e., above +100
Cycles or below -100) making them even more significant.
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum Calculation
Money Flow Index
Moving Averages A complete explanation of the CCI calculation is beyond the scope of this book.
Negative Volume Index The following are basic steps involved in the calculation:
New Highs-Lows
Cumulative 1. Add each period's high, low, and close and divide this sum by 3. This is
New Highs-New Lows the typical price.
Odd Lot Balance Index 2. Calculate an n-period simple moving average of the typical prices
Odd Lot Purchases/Sales computed in Step 1.
Odd Lot Short Ratio
On Balance Volume 3. For each of the prior n-periods, subtract today's Step 2 value from Step 1's
Open Interest value n days ago. For example, if you were calculating a 5-day CCI, you
Open-10 TRIN would perform five subtractions using today's Step 2 value.
Option Analysis
Overbought/Oversold 4. Calculate an n-period simple moving average of the absolute values of
Parabolic SAR
each of the results in Step 3.
Patterns
Percent Retracement
5. Multiply the value in Step 4 by 0.015.
Performance
Point & Figure
6. Subtract the value from Step 2 from the value in Step 1.
7. Divide the value in Step 6 by the value in Step 5.
Price Oscillator
Further details on the contents and interpretation of the CCI can be found in an
Public Short Ratio
Puts/Calls Ratio
article by Donald Lambert that appeared in the October 1980 issue of
Quadrant Lines
Commodities (now known as Futures) Magazine.
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
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Commodity Selection Index - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
COMMODITY SELECTION INDEX
q Moving averages
q Indicators
Overview
q Market indicators The Commodity Selection Index ("CSI") is a momentum indicator. It was
q Line studies
developed by Welles Wilder and is presented in his book New Concepts in
Technical Trading Systems.
q Periodicity
q The time element The name of the index reflects its primary purpose. That is, to help select
q Conclusion commodities suitable for short-term trading.
q Order the Book
q Learn more about
Technical Analysis Interpretation
A high CSI rating indicates that the commodity has strong trending and volatility
Reference characteristics. The trending characteristics are brought out by the Directional
Absolute Breadth Index Movement factor in the calculation--the volatility characteristic by the Average
Accumulation/Distribution True Range factor.
Advance/Decline Line Wilder's approach is to trade commodities with high CSI values (relative to other
commodities). Because these commodities are highly volatile, they have the
potential to make the "most money in the shortest period of time." High CSI
Unchanged Volume
values imply trending characteristics which make it easier to trade the security.
Andrews' Pitchfork
Arms Index
The Commodity Selection Index is designed for short-term traders who can
Average True Range handle the risks associated with highly volatile markets.
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
Example
CANSLIM
Chaikin Oscillator The following chart shows the Japanese Yen and its 14-day CSI. Strong volatility
Commodity Channel Index and strong trends result in high CSI values at points "A" and "B."
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Calculation
Median Price
It is beyond the scope of this book to provide full calculation details on the
Member Short Ratio Commodity Selection Index. It is calculated using the ADXR component of the
Momentum Directional Movement indicator. Wilder's book New Concepts in Technical
Money Flow Index Trading Systems contains detailed information on the calculation of the CSI.
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
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Correlation Analysis - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
CORRELATION ANALYSIS
q Moving averages
q Indicators
Overview
q Market indicators Correlation analysis measures the relationship between two items, for example, a
q Line studies
security's price and an indicator. The resulting value (called the "correlation
coefficient") shows if changes in one item (e.g., an indicator) will result in
q Periodicity changes in the other item (e.g., the security's price).
q The time element
q Conclusion
q Learn more about
Technical Analysis When comparing the correlation between two items, one item is called the
"dependent" item and the other the "independent" item. The goal is to see if a
change in the independent item (which is usually an indicator) will result in a
Reference change in the dependent item (usually a security's price). This information helps
Absolute Breadth Index you understand an indicator's predictive abilities.
Accumulation Swing Index The correlation coefficient can range between ±1.0 (plus or minus one). A
Advance/Decline Line coefficient of +1.0, a "perfect positive correlation," means that changes in the
Advance/Decline Ratio independent item will result in an identical change in the dependent item (e.g., a
Advancing-Declining Issues change in the indicator will result in an identical change in the security's price). A
coefficient of -1.0, a "perfect negative correlation," means that changes in the
Unchanged Volume
Andrews' Pitchfork
independent item will result in an identical change in the dependent item, but the
Arms Index
change will be in the opposite direction. A coefficient of zero means there is no
Average True Range relationship between the two items and that a change in the independent item will
Bollinger Bands have no effect in the dependent item.
Breadth Thrust
Bull/Bear Ratio A low correlation coefficient (e.g., less than ±0.10) suggests that the relationship
Candlesticks, Japanese between two items is weak or non-existent. A high correlation coefficient (i.e.,
CANSLIM closer to plus or minus one) indicates that the dependent variable (e.g., the
Chaikin Oscillator security's price) will usually change when the independent variable (e.g., an
Commodity Channel Index indicator) changes.
Correlation Analysis The direction of the dependent variable's change depends on the sign of the
Cumulative Volume Index coefficient. If the coefficient is a positive number, then the dependent variable will
Cycles move in the same direction as the independent variable; if the coefficient is
Demand Index negative, then the dependent variable will move in the opposite direction of the
independent variable.
Dow Theory
You can use correlation analysis in two basic ways: to determine the predictive
Ease of Movement
ability of an indicator and to determine the correlation between two securities.
Elliott Wave Theory
When comparing the correlation between an indicator and a security's price, a
Equivolume
high positive coefficient (e.g., move then +0.70) tells you that a change in the
Fibonacci Studies indicator will usually predict a change in the security's price. A high negative
Four Percent Model correlation (e.g., less than -0.70) tells you that when the indicator changes, the
Fourier Transform security's price will usually move in the opposite direction. Remember, a low
Fundamental Analysis (e.g., close to zero) coefficient indicates that the relationship between the
Gann Angles security's price and the indicator is not significant.
Interest Rates Correlation analysis is also valuable in gauging the relationship between two
Kagi securities. Often, one security's price "leads" or predicts the price of another
Large Block Ratio security. For example, the correlation coefficient of gold versus the dollar shows a
Linear Regression Lines strong negative relationship. This means that an increase in the dollar usually
MACD predicts a decrease in the price of gold.
Mass Index
Median Price
Member Short Ratio
Example
Momentum The following chart shows the relationship between corn and live hogs. The high
Money Flow Index
correlation values show that, except during brief periods in February and May,
Moving Averages
there is a strong relationship between the price of these items (i.e., when the
New Highs-Lows
price of corn changes, the price of live hogs also moves in the same direction).
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
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Cumulative Volume Index - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
CUMULATIVE VOLUME INDEX
q Moving averages
q Indicators
Overview
q Market indicators The Cumulative Volume Index ("CVI") is a market momentum indicator that
q Line studies
shows whether money is flowing into or out of the stock market. It is calculated by
subtracting the volume of declining stocks from the volume of advancing stocks,
q Periodicity and then adding this value to a running total. See Advancing, declining, and
q The time element unchanged volume.
q Conclusion
q Order the Book
Technical Analysis
The CVI and OBV (On Balance Volume) are quite similar. Many computer
programs and investors incorrectly call the OBV the CVI. OBV, like the CVI, was
Reference
designed to show if volume is flowing into or out of the market. But, because
up-volume and down-volume are not available for individual stocks, OBV
Accumulation Swing Index assumes that all volume is up-volume when the stock closes higher and that all
Advance/Decline Line volume is down-volume when the stock closes lower. The CVI does not have to
Advance/Decline Ratio make this large assumption, because it can use the actual up- and down-volume
Advancing-Declining Issues for the New York Stock Exchange.
Unchanged Volume One useful method of interpreting the CVI is to look at its overall trend. The CVI
Andrews' Pitchfork shows whether there has been more up-volume or down-volume and how long
Arms Index the current volume trend has been in place. Also, look for divergences that
Average True Range develop between the CVI and a market index. For example, is the market index
Bollinger Bands
making a new high while the CVI fails to reach new highs? If so, it is probable
Breadth Thrust
Bull/Bear Ratio
that the market will correct to confirm the underlying story told by the CVI.
CANSLIM
For additional information on interpreting the CVI, refer to the discussion on OBV.
Chaikin Oscillator
Example
Cycles I wrote the following discussion on the CVI in a software manual in July, 18,
Demand Index 1984.
Directional Movement "The trendline on the chart below shows that up-volume exceeded
Dow Theory down-volume (on average) for all of 1983. When this rising trend
Ease of Movement was broken (in February of 1984), the market's weakness was
Efficient Market Theory confirmed.
Elliott Wave Theory
Envelopes (trading bands) Since breaking down through its rising trendline, the CVI has begun
Equivolume to trend upward (and sideways) once again. While the market has
Fibonacci Studies been down, up-volume has exceeded or equaled down-volume (the
Four Percent Model CVI is trending upward again). There are two different ways to
Fourier Transform interpret this: Some investors feel that because the market has
failed to go up (even though up-volume has exceeded, or at least
Gann Angles
kept pace with, down-volume) that the overhead supply is too great.
Interest Rates
After all, if the market falls when there is more up-volume than
Kagi down-volume, what is going to happen when there is more
Large Block Ratio down-volume than up-volume? An opposing school of thought is
Linear Regression Lines that the CVI shows what the smart money is doing. Therefore, since
MACD money is flowing into the market on the up-side, the NYSE should
Mass Index soon correct the divergence and rise too."
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance Now that I have the advantage of retrospect, we can see that the CVI was in fact
Point & Figure showing "what the smart money" was doing. Shortly after the above commentary
Positive Volume Index was written, the market broke, corrected the divergence, and rose sharply.
Price Oscillator
Public Short Ratio Calculation
Puts/Calls Ratio
Quadrant Lines The Cumulative Volume Index is calculated by subtracting the volume of
Relative Strength, declining stocks from the volume of advancing stocks, and then adding this value
Comparative to a cumulative total.
Renko
Spreads
Standard Deviation Table 6 shows the calculation of the CVI.
STIX
Swing Index
Table 6
Three Line Break Date Advancing Declining A-D CVI
Tirone Levels 02/15/94 175 87 88 88
Total Short Ratio
Trade Volume Index 02/16/94 132 129 3 91
Trendlines
TRIX 02/17/94 122 183 -61 30
Typical Price
Ultimate Oscillator 02/18/94 79 171 -92 -62
Upside-Downside Volume 02/22/94 160 80 80 18
Volatility, Chaikin's Because the CVI always starts at zero, the numeric value of the CVI is of little
Volume
importance. What is important is the slope and pattern of the CVI.
Volume Oscillator
Weighted Close
Williams'
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Cycles - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
CYCLES
q Moving averages
q Indicators
Overview
q Market indicators Cycles allow us to accurately predict events in nature: bird migrations, the tides,
q Line studies
planetary movements, etc. You can also use cycle analysis to predict changes in
financial markets, although not always with the accuracy found in nature.
q Periodicity
q The time element The prices of many commodities reflect seasonal cycles. Due to the agricultural
q Conclusion
nature of most commodities, these cycles are easily explained and understood.
However, for some securities, the cyclical nature is more difficult to explain. Theories
q Order the Book as to why certain securities exhibit cyclical patterns range from weather and sun
q Learn more about spots, to planetary movement and basic human psychology. I feel human
Technical Analysis psychology is responsible.

We know that prices are a consensus of human expectations. These expectations
Reference are always changing, shifting the supply/demand lines, and causing prices to
oscillate between overbought and oversold levels. Fluctuations in prices are a
natural process of changing expectations and lead to cyclical patterns.
Many technical analysis indicators and tools were developed in an attempt to profit
from the cyclical nature of prices. For example overbought/oversold indicators (e.g.,
Advancing, Declining, Stochastic, RSI, etc) are designed to help you determine the excessive boundaries
Unchanged Volume of a cycle.
Andrews' Pitchfork
Arms Index The following illustration shows the major components of a cycle.
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interpretation
Interest Rates
An entire book could easily be filled with a discussion of cycles and cycle analysis. In
Kagi the following sections, I briefly explain some of the more popular cycles. A good
Large Block Ratio starting point to learn more about cycles, and technical analysis in general, is Martin
Linear Regression Lines Pring's book Technical Analysis Explained.
MACD
Mass Index Keep in mind that, in hindsight, you can find patterns in anything. To successfully
McClellan Oscillator profit from cycle analysis, the cycle should have a strong track record and be used in
McClellan Summation Index conjunction with other trading tools.
Median Price
Member Short Ratio 28 Day Trading Cycle. Research in the 1930s found a 28-day cycle in the wheat
Momentum market. Some attribute this to the lunar cycle. Regardless of the cause, many
Money Flow Index
markets, including stocks, do appear to have a 28-day cycle. (The 28-day cycle is
Moving Averages
calendar days. This is approximately 20 trading days.)
New Highs-Lows
10-1/2 Month Futures Cycle. Although individual commodities exhibit their own
Cumulative
New Highs-New Lows
unique cycles, a cycle ranging between 9 and 12 months has been found in the CRB
New Highs/Lows Ratio (Commodity Research bureau) Index.
Odd Lot Purchases/Sales January Effect. The stock market has shown an uncanny tendency to end the year
Odd Lot Short Ratio higher if prices increase during the month of January, and to end the year with lower
On Balance Volume prices if prices decline during January. The saying is, "So goes January, so goes the
Open Interest rest of the year." Between 1950 and 1993, the January Effect was correct 38 out of
Open-10 TRIN 44 times--an accuracy of 86%.
Option Analysis
Overbought/Oversold 4 Year Cycle (Kitchin Wave). In 1923, Joseph Kitchin found that a 40 month cycle
Parabolic SAR existed in a variety of financial items in both Great Britain and the United States
Patterns between 1890 and 1922. The four-year cycle was later found to have an extremely
Percent Retracement strong presence in the stock market between 1868 and 1945.
Performance
Point & Figure Although it is called a "four-year cycle," the cycle length has been found to vary
between 40 and 53 months.
Price Oscillator
Presidential Cycle. This cycle is based on the presidential election that occurs
every four years in the United States. The concept is that stock prices will decline
Public Short Ratio
Puts/Calls Ratio
following the election as the newly elected president takes unpopular steps to make
Quadrant Lines adjustments to the economy. Then mid-term, stock prices will begin to rise in
Relative Strength, anticipation of a strong election day economy.
Comparative
Relative Strength Index 9.2 Year Cycle (Juglar Wave). In 1860 Clemant Juglar found that a cycle lasting
Renko approximately 9 years existed in many areas of economic activity. Subsequent
Speed Resistance Lines research found this cycle to have had a strong presence during the period of 1840 to
Spreads 1940.
Standard Deviation
STIX 54 Year Cycle (Kondratieff Wave). Named after a Russian economist, the
Stochastic Oscillator Kondratieff Wave is a long-term, 54-year cycle identified in prices and economic
Swing Index activity. Since the cycle is extremely long-term, it has only repeated itself three times
Three Line Break in the stock market.
Tirone Levels The up-wave is characterized by rising prices, a growing economy, and mildly bullish
Total Short Ratio
stock markets. The plateau is characterized by stable prices, peak economic
Trade Volume Index
capacity, and strong bullish stock markets. The down-wave is characterized by
Trendlines
TRIX
falling prices, severe bear markets, and often by a major war.
Typical Price
Ultimate Oscillator
The following chart of the Kondratieff Wave (from The Media General Financial
Upside/Downside Ratio Weekly, June 3, 1974) shows the Kondratieff Wave and U.S. Wholesale prices.
Volume
Volume Oscillator
Weighted Close
Williams'
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Demand Index - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
DEMAND INDEX
q Moving averages
q Indicators
Overview
q Market indicators The Demand Index combines price and volume in such a way that it is often a
q Line studies
leading indicator of price change. The Demand Index was developed by James
Sibbet.
q Periodicity
q The time element
q Order the Book
q Learn more about
Mr. Sibbet defined six "rules" for the Demand Index:
Technical Analysis
1. A divergence between the Demand Index and prices suggests an
approaching weakness in price.
Reference
Absolute Breadth Index 2. Prices often rally to new highs following an extreme peak in the Demand
Accumulation/Distribution Index (the Index is performing as a leading indicator).
Advance/Decline Line 3. Higher prices with a lower Demand Index peak usually coincides with an
Advance/Decline Ratio important top (the Index is performing as a coincidental indicator).
Advancing, Declining, 4. The Demand Index penetrating the level of zero indicates a change in
Unchanged Volume trend (the Index is performing as a lagging indicator).
Andrews' Pitchfork
Arms Index 5. When the Demand Index stays near the level of zero for any length of
Average True Range time, it usually indicates a weak price movement that will not last long.
Bollinger Bands
Breadth Thrust 6. A large long-term divergence between prices and the Demand Index
Bull/Bear Ratio indicates a major top or bottom.
CANSLIM
Chaikin Oscillator
Example
Correlation Analysis The following chart shows Procter & Gamble and the Demand Index. A long-term
bearish divergence occurred in 1992 as prices rose while the Demand Index fell.
Cycles
Demand Index
According to Sibbet, this indicates a major top.
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Calculation
Moving Averages The Demand Index calculations are too complex for this book (they require
21-columns of data).
New Highs-Lows
Cumulative
Sibbet's original Index plotted the indicator on a scale labeled +0 at the top, 1 in
New Highs-New Lows
the middle, and -0 at the bottom. Most computer software makes a minor
modification to the indicator so it can be scaled on a normal scale.
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Detrended Price Oscillator - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
DETRENDED PRICE OSCILLATOR
q Moving averages
q Indicators
Overview
q Market indicators The Detrended Price Oscillator ("DPO") attempts to eliminate the trend in prices.
q Line studies
Detrended prices allow you to more easily identify cycles and
overbought/oversold levels.
q Periodicity
q The time element
q Order the Book
q Learn more about
Long-term cycles are made up of a series of short-term cycles. Analyzing these
Technical Analysis shorter term components of the long-term cycles can be helpful in identifying
major turning points in the longer term cycle. The DPO helps you remove these
longer-term cycles from prices.
Reference
Absolute Breadth Index To calculate the DPO, you specify a time period. Cycles longer than this time
Accumulation/Distribution period are removed from prices, leaving the shorter-term cycles.
Advancing-Declining Issues Example
Unchanged Volume The following chart shows the 20-day DPO of Ryder. You can see that minor
Andrews' Pitchfork peaks in the DPO coincided with minor peaks in Ryder's price, but the
Arms Index longer-term price trend during June was not reflected in the DPO. This is
Average True Range because the 20-day DPO removes cycles of more than 20 days.
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Herrick Payoff Index Calculation
Interest Rates
Kagi To calculate the Detrended Price Oscillator, first create an n-period simple
Large Block Ratio moving average (where "n" is the number of periods in the moving average).
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Now, subtract the moving average "(n / 2) + 1" days ago, from the closing price.
Moving Averages
The result is the DPO.
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Directional Movement - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
DIRECTIONAL MOVEMENT
q Moving averages
q Indicators
Overview
q Market indicators The Directional Movement System helps determine if a security is "trending." It
q Line studies
was developed by Welles Wilder and is explained in his book, New Concepts in
q Periodicity
q The time element
q Conclusion
q Order the Book
Interpretation
q Learn more about The basic Directional Movement trading system involves comparing the 14-day
Technical Analysis +DI ("Directional Indicator") and the 14-day -DI. This can be done by plotting the
two indicators on top of each other or by subtracting the +DI from the -DI. Wilder
suggests buying when the +DI rises above the -DI and selling when the +DI falls
Reference below the -DI.
Accumulation/Distribution Wilder qualifies these simple trading rules with the "extreme point rule." This rule
is designed to prevent whipsaws and reduce the number of trades. The extreme
point rule requires that on the day that the +DI and -DI cross, you note the
"extreme point." When the +DI rises above the -DI, the extreme price is the high
Advancing, Declining, price on the day the lines cross. When the +DI falls below the -DI, the extreme
Unchanged Volume price is the low price on the day the lines cross.
Andrews' Pitchfork
Arms Index The extreme point is then used as a trigger point at which you should implement
Average True Range the trade. For example, after receiving a buy signal (the +DI rose above the -DI),
Bollinger Bands you should then wait until the security's price rises above the extreme point (the
Breadth Thrust high price on the day that the +DI and -DI lines crossed) before buying. If the
Bull/Bear Ratio price fails to rise above the extreme point, you should continue to hold your short
Candlesticks, Japanese position.
CANSLIM
Chaikin Oscillator In Wilder's book, he notes that this system works best on securities that have a
Commodity Channel Index high Commodity Selection Index. He says, "as a rule of thumb, the system will be
profitable on commodities that have a CSI value above 25. When the CSI drops
below 20, then do not use a trend-following system."
Cycles
Demand Index
Example
Dow Theory
Ease of Movement
The following chart shows Texaco and the +DI and -DI indicators. I drew "buy"
Efficient Market Theory arrows when the +DI rose above the -DI and "sell" arrows when the +DI fell below
Elliott Wave Theory the -DI. I only labeled the significant crossings and did not label the many
Envelopes (trading bands) short-term crossings.
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Calculation
Odd Lot Short Ratio The calculations of the Directional Movement system are beyond the scope of
On Balance Volume this book. Wilder's book, New Concepts In Technical Trading, gives complete
Open Interest step-by-step instructions on the calculation and interpretation of these indicators.
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/direcmovem.html [5/11/2001 3:15:39 am]

Dow Theory - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
DOW THEORY
q Moving averages
q Indicators
Overview
q Market indicators In 1897, Charles Dow developed two broad market averages. The "Industrial
q Line studies
Average" included 12 blue-chip stocks and the "Rail Average" was comprised of
20 railroad enterprises. These are now known as the Dow Jones Industrial
q Periodicity Average and the Dow Jones Transportation Average.
q The time element
q Conclusion
The Dow Theory resulted from a series of articles published by Charles Dow in
The Wall Street Journal between 1900 and 1902. The Dow Theory is the
q Order the Book common ancestor to most principles of modern technical analysis.
q Learn more about
Technical Analysis Interestingly, the Theory itself originally focused on using general stock market
trends as a barometer for general business conditions. It was not originally
intended to forecast stock prices. However, subsequent work has focused almost
Reference exclusively on this use of the Theory.
Advance/Decline Line Interpretation
Advancing-Declining Issues The Dow Theory comprises six assumptions:
Unchanged Volume
Andrews' Pitchfork
1. The Averages Discount Everything.
Arms Index
Average True Range
An individual stock's price reflects everything that is known about the security. As
Bollinger Bands
new information arrives, market participants quickly disseminate the information
Breadth Thrust and the price adjusts accordingly. Likewise, the market averages discount and
Bull/Bear Ratio reflect everything known by all stock market participants.
CANSLIM
Chaikin Oscillator
2. The Market Is Comprised of Three Trends.
At any given time in the stock market, three forces are in effect: the Primary
Correlation Analysis trend, Secondary trends, and Minor trends.
Cycles The Primary trend can either be a bullish (rising) market or a bearish (falling)
Demand Index market. The Primary trend usually lasts more than one year and may last for
Detrended Price Oscillator several years. If the market is making successive higher-highs and higher-lows
Directional Movement the primary trend is up. If the market is making successive lower-highs and
Dow Theory lower-lows, the primary trend is down.
Ease of Movement
Efficient Market Theory Secondary trends are intermediate, corrective reactions to the Primary trend.
Elliott Wave Theory These reactions typically last from one to three months and retrace from one-third
Envelopes (trading bands) to two-thirds of the previous Secondary trend. The following chart shows a
Equivolume Primary trend (Line "A") and two Secondary trends ("B" and "C").
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows Minor trends are short-term movements lasting from one day to three weeks.
New Highs/Lows Ratio Secondary trends are typically comprised of a number of Minor trends. The Dow
Odd Lot Balance Index Theory holds that, since stock prices over the short-term are subject to some
Odd Lot Purchases/Sales degree of manipulation (Primary and Secondary trends are not), Minor trends are
Odd Lot Short Ratio
unimportant and can be misleading.
On Balance Volume
Open Interest
Open-10 TRIN 3. Primary Trends Have Three Phases.
Option Analysis
Overbought/Oversold The Dow Theory says that the First phase is made up of aggressive buying by
Parabolic SAR informed investors in anticipation of economic recovery and long-term growth.
Patterns
The general feeling among most investors during this phase is one of "gloom and
Percent Retracement
Performance
doom" and "disgust." The informed investors, realizing that a turnaround is
Point & Figure
inevitable, aggressively buy from these distressed sellers.
The Second phase is characterized by increasing corporate earnings and
Price Oscillator improved economic conditions. Investors will begin to accumulate stock as
Price Rate-of-Change conditions improve.
Public Short Ratio
Puts/Calls Ratio The Third phase is characterized by record corporate earnings and peak
Quadrant Lines economic conditions. The general public (having had enough time to forget about
Relative Strength, their last "scathing") now feels comfortable participating in the stock market--fully
Comparative convinced that the stock market is headed for the moon. They now buy even
Relative Strength Index more stock, creating a buying frenzy. It is during this phase that those few
Renko investors who did the aggressive buying during the First phase begin to liquidate
Speed Resistance Lines their holdings in anticipation of a downturn.
Spreads
Standard Deviation The following chart of the Dow Industrials illustrates these three phases during
STIX the years leading up to the October 1987 crash.
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag In anticipation of a recovery from the recession, informed investors began to
Bibliography accumulate stock during the First phase (box "A"). A steady stream of improved
About the Author earnings reports came in during the Second phase (box "B"), causing more
investors to buy stock. Euphoria set in during the Third phase (box "C"), as the
general public began to aggressively buy stock.

4. The Averages Must Confirm Each Other.
The Industrials and Transports must confirm each other in order for a valid
change of trend to occur. Both averages must extend beyond their previous
secondary peak (or trough) in order for a change of trend to be confirmed.

The following chart shows the Dow Industrials and the Dow Transports at the
beginning of the bull market in 1982.

Confirmation of the change in trend occurred when both averages rose above
their previous secondary peak.

5. The Volume Confirms the Trend. The Dow Theory focuses
primarily on price action. Volume is only used to confirm uncertain situations.

Volume should expand in the direction of the primary trend. If the primary trend is
down, volume should increase during market declines. If the primary trend is up,
volume should increase during market advances.

The following chart shows expanding volume during an up trend, confirming the
primary trend.

6. A Trend Remains Intact Until It Gives a Definite
Reversal Signal.
An up-trend is defined by a series of higher-highs and higher-lows. In order for an
up-trend to reverse, prices must have at least one lower high and one lower low
(the reverse is true of a downtrend).

When a reversal in the primary trend is signaled by both the Industrials and
Transports, the odds of the new trend continuing are at their greatest. However,
the longer a trend continues, the odds of the trend remaining intact become
progressively smaller. The following chart shows how the Dow Industrials
registered a higher high (point "A") and a higher low (point "B") which identified a
reversal of the down trend (line "C").



http://www.equis.com/free/taaz/dowtheory.html [5/11/2001 3:15:47 am]

Ease of Movement - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
EASE OF MOVEMENT
q Moving averages
q Indicators
Overview
q Market indicators The Ease of Movement indicator shows the relationship between volume and
q Line studies
price change. As with Equivolume charting, this indicator shows how much
volume is required to move prices.
q Periodicity
q The time element The Ease of Movement indicator was developed Richard W. Arms, Jr., the
q Conclusion creator of Equivolume.
q Order the Book
q Learn more about
High Ease of Movement values occur when prices are moving upward on light
Reference volume. Low Ease of Movement values occur when prices are moving downward
Absolute Breadth Index on light volume. If prices are not moving, or if heavy volume is required to move
Accumulation/Distribution prices, then the indicator will also be near zero.
Advance/Decline Line The Ease of Movement indicator produces a buy signal when it crosses above
Advance/Decline Ratio zero, indicating that prices are moving upward more easily; a sell signal is given
Advancing-Declining Issues when the indicator crosses below zero, indicating that prices are moving
downward more easily.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Example
Breadth Thrust
The following chart shows Compaq and a 14-day Ease of Movement indicator. A
Bull/Bear Ratio
9-day moving average was plotted on the Ease of Movement indicator.
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Herrick Payoff Index "Buy" and "sell" arrows were placed on the chart when the moving average
Interest Rates
crossed zero.
Kagi
Large Block Ratio
MACD Calculation
Mass Index
To calculate the Ease of Movement indicator, first calculate the Midpoint Move as
shown below.
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages Next, calculate the "High-Low" Box Ratio expressed in eighths with the
Negative Volume Index denominator dropped (e.g., 1-1/2 points = 12/8 or just 12).
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Purchases/Sales The Ease of Movement ("EMV") indicator is then calculated from the Midpoint
Odd Lot Short Ratio Move and Box Ratio.
On Balance Volume
Open Interest The raw Ease of Movement value is usually smoothed with a moving average.
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/easeofmovem.html [5/11/2001 3:15:51 am]

Efficient Market Theory - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
EFFICIENT MARKET THEORY
q Moving averages
q Indicators
Overview
q Market indicators The Efficient Market Theory says that security prices correctly and almost
q Line studies
immediately reflect all information and expectations. It says that you cannot
consistently outperform the stock market due to the random nature in which
q Periodicity information arrives and the fact that prices react and adjust almost immediately to
q The time element reflect the latest information. Therefore, it assumes that at any given time, the
q Conclusion market correctly prices all securities. The result, or so the Theory advocates, is
that securities cannot be overpriced or underpriced for a long enough period of
q Order the Book
time to profit therefrom.
q Learn more about
Technical Analysis The Theory holds that since prices reflect all available information, and since
information arrives in a random fashion, there is little to be gained by any type of
analysis, whether fundamental or technical. It assumes that every piece of
Reference information has been collected and processed by thousands of investors and this
information (both old and new) is correctly reflected in the price. Returns cannot
be increased by studying historical data, either fundamental or technical, since
past data will have no effect on future prices.
The problem with both of these theories is that many investors base their
Advancing, Declining, expectations on past prices (whether using technical indicators, a strong track
Unchanged Volume record, an oversold condition, industry trends, etc). And since investors
Andrews' Pitchfork expectations control prices, it seems obvious that past prices do have a
Arms Index significant influence on future prices.
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/efficmarktheo.html [5/11/2001 3:15:53 am]

Elliott Wave Theory - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ELLIOTT WAVE THEORY
q Moving averages
q Indicators
Overview
q Market indicators The Elliott Wave Theory is named after Ralph Nelson Elliott. Inspired by the Dow
q Line studies Theory and by observations found throughout nature, Elliott concluded that the
q Periodicity
movement of the stock market could be predicted by observing and identifying a
repetitive pattern of waves. In fact, Elliott believed that all of man's activities, not
q The time element just the stock market, were influenced by these identifiable series of waves.
q Conclusion
q Order the Book
With the help of C. J. Collins, Elliott's ideas received the attention of Wall Street
in a series of articles published in Financial World magazine in 1939. During the
q Learn more about 1950s and 1960s (after Elliott's passing), his work was advanced by Hamilton
Technical Analysis Bolton. In 1960, Bolton wrote Elliott Wave Principle--A Critical Appraisal. This
was the first significant work since Elliott's passing. In 1978, Robert Prechter and
Reference
A. J. Frost collaborated to write the book Elliott Wave Principle.
Interpretation
The underlying forces behind the Elliott Wave Theory are of building up and
Advancing, Declining, tearing down. The basic concepts of the Elliott Wave Theory are listed below.
Unchanged Volume
Andrews' Pitchfork 1. Action is followed by reaction.
Arms Index
Average True Range 2. There are five waves in the direction of the main trend followed by three
Bollinger Bands corrective waves (a "5-3" move).
Breadth Thrust
Bull/Bear Ratio 3. A 5-3 move completes a cycle. This 5-3 move then becomes two
Candlesticks, Japanese subdivisions of the next higher 5-3 wave.
CANSLIM
Chaikin Oscillator 4. The underlying 5-3 pattern remains constant, though the time span of each
Commodity Channel Index may vary.
Correlation Analysis The basic pattern is made up of eight waves (five up and three down) which are
Cumulative Volume Index labeled 1, 2, 3, 4, 5, a, b, and c on the following chart.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
McClellan Oscillator Waves 1, 3, and 5 are called impulse waves. Waves 2 and 4 are called corrective
waves. Waves a, b, and c correct the main trend made by waves 1 through 5.
Median Price
Member Short Ratio
The main trend is established by waves 1 through 5 and can be either up or
Momentum
Money Flow Index
down. Waves a, b, and c always move in the opposite direction of waves 1
Moving Averages
through 5.
New Highs-Lows
Elliott Wave Theory holds that each wave within a wave count contains a
Cumulative complete 5-3 wave count of a smaller cycle. The longest wave count is called the
New Highs-New Lows Grand Supercycle. Grand Supercycle waves are comprised of Supercycles, and
New Highs/Lows Ratio Supercycles are comprised of Cycles. This process continues into Primary,
Odd Lot Balance Index Intermediate, Minute, Minuette, and Sub-minuette waves.
Odd Lot Short Ratio The following chart shows how 5-3 waves are comprised of smaller cycles.
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads This chart contains the identical pattern shown in the preceding chart (now
Standard Deviation displayed using dotted lines), but the smaller cycles are also displayed. For
STIX example, you can see that impulse wave labeled 1 in the preceding chart is
Stochastic Oscillator comprised of five smaller waves.
Swing Index
Three Line Break Fibonacci numbers provide the mathematical foundation for the Elliott Wave
Time Series Forecast Theory. Briefly, the Fibonacci number sequence is made by simply starting at 1
Tirone Levels and adding the previous number to arrive at the new number (i.e., 0+1=1, 1+1=2,
Total Short Ratio
2+1=3, 3+2=5, 5+3=8, 8+5=13, etc). Each of the cycles that Elliott defined are
Trade Volume Index
Trendlines
comprised of a total wave count that falls within the Fibonacci number sequence.
TRIX
For example, the preceding chart shows two Primary waves (an impulse wave
Typical Price and a corrective wave), eight intermediate waves (the 5-3 sequence shown in the
Ultimate Oscillator first chart), and 34 minute waves (as labeled). The numbers 2, 8, and 34 fall
Upside/Downside Ratio within the Fibonacci numbering sequence.
Vertical Horizontal Filter Elliott Wave practitioners use their determination of the wave count in
Volatility, Chaikin's combination with the Fibonacci numbers to predict the time span and magnitude
Volume of future market moves ranging from minutes and hours to years and decades.
Volume Oscillator
Volume Rate-of-Change There is general agreement among Elliott Wave practitioners that the most recent
Weighted Close Grand Supercycle began in 1932 and that the final fifth wave of this cycle began
Williams' at the market bottom in 1982. However, there has been much disparity since
Accumulation/Distribution 1982. Many heralded the arrival of the October 1987 crash as the end of the
Williams' %R cycle. The strong recovery that has since followed has caused them to reevaluate
Zig Zag
their wave counts. Herein, lies the weakness of the Elliott Wave Theory--its
Bibliography
About the Author
predictive value is dependent on an accurate wave count. Determining where one
wave starts and another wave ends can be extremely subjective.



http://www.equis.com/free/taaz/elliotwavetheo.html [5/11/2001 3:16:00 am]

Envelopes (Trading Bands) - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ENVELOPES (TRADING BANDS)
q Moving averages
q Indicators
Overview
q Market indicators An envelope is comprised of two moving averages. One moving average is
q Line studies shifted upward and the second moving average is shifted downward.
q Periodicity
q The time element
q Conclusion
Interpretation
q Order the Book Envelopes define the upper and lower boundaries of a security's normal trading
q Learn more about range. A sell signal is generated when the security reaches the upper band
Technical Analysis whereas a buy signal is generated at the lower band. The optimum percentage
shift depends on the volatility of the security--the more volatile, the larger the
percentage.
Reference
Absolute Breadth Index The logic behind envelopes is that overzealous buyers and sellers push the price
Accumulation/Distribution to the extremes (i.e., the upper and lower bands), at which point the prices often
Accumulation Swing Index stabilize by moving to more realistic levels. This is similar to the interpretation of
Advance/Decline Line Bollinger Bands.
Unchanged Volume
Andrews' Pitchfork
Example
Arms Index
Average True Range
The following chart displays American Brands with a 6% envelope of a 25-day
Bollinger Bands
exponential moving average.
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
You can see how American Brands' price tended to bounce off the bands rather
Gann Angles
than penetrate them.
Interest Rates
Kagi Calculation
Large Block Ratio
Linear Regression Lines Envelopes are calculated by shifted moving averages. In the above example, one
MACD 25-day exponential moving average was shifted up 6% and another 25-day
Mass Index moving average was shifted down 6%.
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/envelopes.html [5/11/2001 3:16:04 am]

Equivolume - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
EQUIVOLUME
q Moving averages
q Indicators
Overview
q Market indicators Equivolume displays prices in a manner that emphasizes the relationship
q Line studies
between price and volume. Equivolume was developed by Richard W. Arms, Jr.,
and is further explained in his book Volume Cycles in the Stock Market.
q Periodicity
q The time element Instead of displaying volume as an "afterthought" on the lower margin of a chart,
q Conclusion Equivolume combines price and volume in a two-dimensional box. The top line of
the box is the high for the period and the bottom line is the low for the period. The
q Order the Book
width of the box is the unique feature of Equivolume--it represents the volume for
q Learn more about the period.
Technical Analysis
Figure 46 shows the components of an Equivolume box:
Reference
Absolute Breadth Index Figure 46
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
The bottom scale on an Equivolume chart is based on volume, rather than on
CANSLIM
dates. This suggests that volume, rather than time, is the guiding influence of
Chaikin Oscillator price change. To quote Mr. Arms, "If the market wore a wristwatch, it would be
Commodity Channel Index divided into shares, not hours."
Candlevolume
Cycles
Demand Index
Candlevolume charts are a unique hybrid of Equivolume and candlestick charts.
Detrended Price Oscillator Candlevolume charts possess the shadows and body characteristics of
Directional Movement candlestick charts, plus the volume width attribute of Equivolume charts. This
Dow Theory combination gives you the unique ability to study candlestick patterns in
Ease of Movement combination with their volume related movements.
Elliott Wave Theory
Equivolume Interpretation
Fibonacci Studies
Four Percent Model The shape of each Equivolume box provides a picture of the supply and demand
Fourier Transform for the security during a specific trading period. Short and wide boxes (heavy
Fundamental Analysis volume accompanied with small changes in price) tend to occur at turning points,
Gann Angles while tall and narrow boxes (light volume accompanied with large changes in
price) are more likely to occur in established trends.
Interest Rates
Kagi
Especially important are boxes which penetrate support or resistance levels,
Large Block Ratio
since volume confirms penetrations. A "power box" is one in which both height
MACD and width increase substantially. Power boxes provide excellent confirmation to a
Mass Index breakout. A narrow box, due to light volume, puts the validity of a breakout in
McClellan Oscillator question.
Median Price
Member Short Ratio
Momentum Example
Money Flow Index
The following Equivolume chart shows Phillip Morris' prices.
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Price Rate-of-Change Note the price consolidation from June to September with resistance around
Public Short Ratio $51.50. The strong move above $51.50 in October produced a power box
Puts/Calls Ratio
validating the breakout.
Quadrant Lines
Relative Strength,
The following is a Candlevolume chart of the British Pound.
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume You can see that this hybrid chart is similar to a candlestick chart, but the width of
Volume Oscillator
the bars vary based on volume.
Weighted Close
Williams'
TOP OF PAGE
Williams' %R
Zig Zag
Bibliography
About the Author

Top of Page Home | MetaStock | Products | Customer Corner | Partners | Free Stuff | Legalities | Site Map | Contact
Copyright 2000 Equis International.

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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
FIBONACCI STUDIES
q Moving averages
q Indicators
Overview
q Market indicators Leonardo Fibonacci was a mathematician who was born in Italy around the year
q Line studies
1170. It is believed that Mr. Fibonacci discovered the relationship of what are now
referred to as Fibonacci numbers while studying the Great Pyramid of Gizeh in
q Periodicity Egypt.
q The time element
q Conclusion
Fibonacci numbers are a sequence of numbers in which each successive number
is the sum of the two previous numbers:
q Order the Book
q Learn more about 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 610, etc.
Technical Analysis
These numbers possess an intriguing number of interrelationships, such as the
fact that any given number is approximately 1.618 times the preceding number
Reference and any given number is approximately 0.618 times the following number. The
Absolute Breadth Index booklet Understanding Fibonacci Numbers by Edward Dobson contains a good
Accumulation/Distribution discussion of these interrelationships.
Interpretation
Unchanged Volume There are four popular Fibonacci studies: arcs, fans, retracements, and time
Andrews' Pitchfork
zones. The interpretation of these studies involves anticipating changes in trends
Arms Index
Average True Range
as prices near the lines created by the Fibonacci studies.
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
Arcs
Candlesticks, Japanese Fibonacci Arcs are displayed by first drawing a trendline between two extreme
CANSLIM
points, for example, a trough and opposing peak. Three arcs are then drawn,
Chaikin Oscillator
centered on the second extreme point, so they intersect the trendline at the
Fibonacci levels of 38.2%, 50.0%, and 61.8%.
The interpretation of Fibonacci Arcs involves anticipating support and resistance
Cycles as prices approach the arcs. A common technique is to display both Fibonacci
Demand Index Arcs and Fibonacci Fan Lines and to anticipate support/resistance at the points
Detrended Price Oscillator where the Fibonacci studies cross.
Dow Theory Note that the points where the Arcs cross the price data will vary depending on
Ease of Movement the scaling of the chart, because the Arcs are drawn so they are circular relative
Efficient Market Theory to the chart paper or computer screen.
Elliott Wave Theory
Envelopes (trading bands) The following British Pound chart illustrates how the arcs can provide support and
Equivolume resistance (points "A," "B," and "C").
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
New Highs/Lows Ratio Fans
Odd Lot Purchases/Sales Fibonacci Fan Lines are displayed by drawing a trendline between two extreme
Odd Lot Short Ratio points, for example, a trough and opposing peak. Then an "invisible" vertical line
On Balance Volume
is drawn through the second extreme point. Three trendlines are then drawn from
Open Interest
Open-10 TRIN
the first extreme point so they pass through the invisible vertical line at the
Option Analysis
Fibonacci levels of 38.2%, 50.0%, and 61.8%.. (This technique is similar to
Overbought/Oversold Speed Resistance Lines.)
Parabolic SAR
Patterns The following chart of Texaco shows how prices found support at the Fan Lines.
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels You can see that when prices encountered the top Fan Line (point "A"), they
Total Short Ratio were unable to penetrate the line for several days. When prices did penetrate this
Trade Volume Index line, they dropped quickly to the bottom Fan Line (points "B" and "C") before
Trendlines finding support. Also note that when prices bounced off the bottom line (point
TRIX "C"), they rose freely to the top line (point "D") where they again met resistance,
Typical Price fell to the middle line (point "E") and rebounded.
Ultimate Oscillator
Upside-Downside Volume Retracements
Volatility, Chaikin's Fibonacci Retracements are displayed by first drawing a trendline between two
Volume extreme points, for example, a trough and opposing peak. A series of nine
Volume Oscillator horizontal lines are drawn intersecting the trendline at the Fibonacci levels of
Volume Rate-of-Change 0.0%, 23.6%, 38.2%, 50%, 61.8%, 100%, 161.8%, 261.8%, and 423.6%. (Some
Weighted Close of the lines will probably not be visable because they will be off the scale.)
Williams'
Accumulation/Distribution After a significant price move (either up or down), prices will often retrace a
Williams' %R significant portion (if not all) of the original move. As prices retrace, support and
Zig Zag
resistance levels often occur at or near the Fibonacci Retracement levels.
Bibliography
About the Author
In the following chart of Eastman Kodak, Fibonacci Retracement lines were
drawn between a major trough and peak.

You can see that support and resistance occurred near the Fibonacci levels of 23
and 38%.

Time Zones
Fibonacci Time Zones are a series of vertical lines. They are spaced at the
Fibonacci intervals of 1, 2, 3, 5, 8, 13, 21, 34, etc. The interpretation of Fibonacci
Time Zones involves looking for significant changes in price near the vertical
lines.

In the following example, Fibonacci Time Zones were drawn on the Dow Jones
Industrials beginning at the market bottom in 1970.

You can see that significant changes in the Industrials occurred on or near the
Time Zone lines.



http://www.equis.com/free/taaz/fibonacci.html [5/11/2001 3:16:16 am]

Four Percent Model - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
FOUR PERCENT MODEL
q Moving averages
q Indicators
Overview
q Market indicators The Four Percent Model is a stock market timing tool based on the percent
q Line studies
change of the weekly close of the (geometric) Value Line Composite Index. It is a
trend following tool designed to keep you in the market during major up moves
q Periodicity and out (or short) during major down moves.
q The time element
q Conclusion
The Four Percent Model was developed by Ned Davis and popularized in Martin
Zweig's book Winning on Wall Street.
q Order the Book
q Learn more about
Technical Analysis
Interpretation
Reference A significant strength of the Four Percent Model is its simplicity. The Model is
Absolute Breadth Index easy to calculate and to analyze. In fact, only one piece of data is required--the
Accumulation/Distribution weekly close of the Value Line Composite Index.
Advance/Decline Line A buy signal is generated when the index rises at least four percent from a
Advance/Decline Ratio previous value. A sell signal is generated when the index falls at least four
Advancing-Declining Issues percent. For example, a buy signal would be generated if the weekly close of the
Value Line rose from 200 to 208 (a four percent rise). If the index subsequently
Unchanged Volume
Andrews' Pitchfork
rallied to 250 and then dropped below 240 (a four percent drop), a sell signal
Arms Index
would be generated.
Average True Range
Bollinger Bands
From 1961 to 1992, a buy and hold approach on the Value Line Index would
Breadth Thrust have yielded 149 points (3% annual return). Using the Four Percent Model
Bull/Bear Ratio (including shorts) during the same period would have yielded 584 points (13.6%
Candlesticks, Japanese annual return). Interestingly, about half of the signals generated were wrong.
CANSLIM However, the average gain was much larger than the average loss--an excellent
Chaikin Oscillator example of the stock market maxim "cut your losses short and let your profits
Commodity Channel Index run."
Cycles Example
Demand Index
The following chart shows the Zig Zag indicator plotted on top of the Value Line
Directional Movement Composite Index.
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
The Zig Zag indicator identifies changes in price that are at least 4%.
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/4percmodel.html [5/11/2001 3:16:20 am]

Fourier Transform - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
FOURIER TRANSFORM
q Moving averages
q Indicators
Overview
q Market indicators Fourier Transforms were originally developed as an engineering tool to study
q Line studies
repetitious phenomena such as the vibration of a stringed musical instrument or
an airplane wing during flight. It is used in technical analysis to detect cyclical
q Periodicity patterns within prices.
q The time element
q Conclusion
It is beyond the scope of this book to provide a full explanation of Fourier
analysis. Further information can be found in Technical Analysis of Stocks and
q Order the Book
Commodities (TASC), Volume One issues #2, #4, and #7; Volume Two issue #4;
q Learn more about Volume Three issues #2 and #7 (Understanding Cycles); Volume Four issue #6;
Technical Analysis Volume Five issues #3 (In Search of the Cause of Cycles) and #5 (Cycles and
Chart Patterns); and Volume Six issue #11 (Cycles).
Reference
The complete Fourier analysis concept is called spectral analysis. Fast Fourier
Transform ("FFT") is an abbreviated calculation that can be computed in a
Accumulation Swing Index fraction of the time. FFT sacrifices phase relationships and concentrates only on
Advance/Decline Line cycle length and amplitude.
Advancing-Declining Issues The benefit of FFT is its ability to extract the predominate cycle(s) from a series
Advancing, Declining, of data (e.g., an indicator or a security's price).
Unchanged Volume
Andrews' Pitchfork FFTs are based on the principal that any finite, time-ordered set of data can be
Arms Index approximated by decomposing the data into a set of sine waves. Each sine wave
Average True Range has a specific cycle length, amplitude, and phase relationship to the other sine
Bollinger Bands waves.
Breadth Thrust
Bull/Bear Ratio A difficulty occurs when applying FFT analysis to security prices, because FFTs
Candlesticks, Japanese were designed to be applied to non-trending, periodic data. The fact that security
CANSLIM prices are often trending is overcome by "detrending" the data using either a
Chaikin Oscillator linear regression trendline or a moving average. To adjust for the fact that
security data is not truly periodic, since securities are not traded on weekends
and some holidays, the prices are passed through a smoothing function called a
"hamming window."
Cycles
Demand Index
Interpretation
Dow Theory
Ease of Movement
As stated above, it is beyond the scope of this book to provide complete
Efficient Market Theory interpretation of FFT analysis. I will focus my discussion on the "Interpreted" Fast
Elliott Wave Theory Fourier Transforms found in the MetaStock computer program. This indicator
Envelopes (trading bands) shows the three predominate cycle lengths and the relative strength of each of
Equivolume these cycles.
Fibonacci Studies
Four Percent Model The following chart displays the Interpreted FFT of US Steel.
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
The Interpreted FFT shows that predominate cycle lengths in US Steel are 205,
On Balance Volume
39, and 27 trading days.
Open Interest
Open-10 TRIN
The Interpreted FFT indicator always displays the most significant cycle (205
Option Analysis days in this example) on the left and the least significant cycle (27 days in this
Overbought/Oversold example) on the right. The length of each cycle is determined by the numeric
Parabolic SAR value of the indicator (as read from the y-axis scales on the sides of the chart).
Patterns
Percent Retracement The longer the indicator remains at a specific value, the more predominate it was
Performance in the data being analyzed. For example, in the above chart, the 205-day cycle is
Point & Figure five times stronger than the 39-day cycle, because the indicator was at 205 for a
Positive Volume Index much longer period (the fact that 205 is five times greater than 39 is coincidental).
Price Oscillator Once you know the predominate cycle length, you can use it as a parameter for
Price Rate-of-Change other indicators. For example, if you know that a security has a 35-day cycle, you
Public Short Ratio may want to plot a 35-day moving average or a 35-day RSI on the security.
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/fourier.html [5/11/2001 3:16:30 am]

Fundamental Analysis - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
FUNDAMENTAL ANALYSIS
q Moving averages
q Indicators
Overview
q Market indicators Fundamental analysis is the study of economic, industry, and company
q Line studies
conditions in an effort to determine the value of a company's stock. Fundamental
analysis typically focuses on key statistics in a company's financial statements to
q Periodicity determine if the stock price is correctly valued.
q The time element
q Conclusion
I realize that some people will find a discussion on fundamental analysis within a
book on technical analysis peculiar, but the two theories are not as different as
q Order the Book many people believe. It is quite popular to apply technical analysis to charts of
q Learn more about fundamental data, for example, to compare trends in interest rates with changes
Technical Analysis in security prices. It is also popular to use fundamental analysis to select
securities and then use technical analysis to time individual trades. Even diehard
technicians can benefit from an understanding of fundamental analysis (and vice
Reference versa).
Interpretation
Advancing-Declining Issues Most fundamental information focuses on economic, industry, and company
statistics. The typical approach to analyzing a company involves four basic steps:
Unchanged Volume
Andrews' Pitchfork
1. Determine the condition of the general economy.
Arms Index
Average True Range
2. Determine the condition of the industry.
Bollinger Bands
Breadth Thrust
3. Determine the condition of the company.
Bull/Bear Ratio
4. Determine the value of the company's stock.
CANSLIM
Chaikin Oscillator
Commodity Channel Index Economic Analysis
Correlation Analysis The economy is studied to determine if overall conditions are good for the stock
Cumulative Volume Index market. Is inflation a concern? Are interest rates likely to rise or fall? Are
Cycles
consumers spending? Is the trade balance favorable? Is the money supply
Demand Index
expanding or contracting? These are just some of the questions that the
fundamental analyst would ask to determine if economic conditions are right for
Dow Theory the stock market.
Ease of Movement
Elliott Wave Theory
Industry Analysis
Equivolume
The company's industry obviously influences the outlook for the company. Even
Fibonacci Studies
the best stocks can post mediocre returns if they are in an industry that is
Four Percent Model struggling. It is often said that a weak stock in a strong industry is preferable to a
Fourier Transform strong stock in a weak industry.
Gann Angles
Company Analysis
Interest Rates
Kagi
After determining the economic and industry conditions, the company itself is
Large Block Ratio analyzed to determine its financial health. This is usually done by studying the
Linear Regression Lines company's financial statements. From these statements a number of useful ratios
MACD can be calculated. The ratios fall under five main categories: profitability, price,
Mass Index liquidity, leverage, and efficiency. When performing ratio analysis on a company,
McClellan Oscillator the ratios should be compared to other companies within the same or similar
McClellan Summation Index industry to get a feel for what is considered "normal." At least one popular ratio
Median Price from each category is shown below.
Member Short Ratio
Momentum Net Profit Margin.A company's net profit margin is a profitability ratio calculated
Money Flow Index by dividing net income by total sales. This ratio indicates how much profit the
Moving Averages
company is able to squeeze out of each dollar of sales. For example, a net profit
margin of 30%, indicates that $0.30 of every $1.00 in sales is realized in profits.
New Highs-Lows
Cumulative
P/E Ratio. The P/E ratio (i.e., Price/Earnings ratio) is a price ratio calculated by
New Highs-New Lows
dividing the security's current stock price by the previous four quarter's earnings
Odd Lot Balance Index per share (EPS).
Odd Lot Short Ratio The P/E Ratio shows how much an investor must pay to "buy" $1 of the
On Balance Volume company's earnings. For example, if a stock's current price is $20 and the EPS
Open Interest for the last four quarters was $2, the P/E ratio is 10 (i.e., $20 / $2 = 10). This
Open-10 TRIN means that you must pay $10 to "buy" $1 of the company's earnings. Of course,
Option Analysis investor expectations of company's future performance play a heavy role in
Overbought/Oversold determining a company's current P/E ratio.
Parabolic SAR
Patterns A common approach is to compare the P/E ratio of companies within the same
Percent Retracement industry. All else being equal, the company with the lower P/E ratio is the better
Performance value.
Point & Figure
Positive Volume Index Book Value Per Share. A company's book value is a price ratio calculated by
Price and Volume Trend dividing total net assets (assets minus liabilities) by total shares outstanding.
Price Oscillator
Depending on the accounting methods used and the age of the assets, book
Public Short Ratio
value can be helpful in determining if a security is overpriced or under-priced. If a
Puts/Calls Ratio
security is selling at a price far below book value, it may be an indication that the
Quadrant Lines security is under-priced.
Relative Strength,
Comparative Current Ratio. A company's current ratio is a liquidity ratio calculated by dividing
Relative Strength Index current assets by current liabilities. This measures the company's ability to meet
Renko current debt obligations. The higher the ratio the more liquid the company. For
Speed Resistance Lines example, a current ratio of 3.0 means that the company's current assets, if
Spreads liquidated, would be sufficient to pay for three times the company's current
Standard Deviation liabilities.
STIX
Stochastic Oscillator Debt Ratio. A company's debt ratio is a leverage ratio calculated by dividing total
Swing Index liabilities by total assets. This ratio measures the extent to which total assets
Three Line Break have been financed with debt. For example, a debt ratio of 40% indicates that
40% of the company's assets have been financed with borrowed funds. Debt is a
Tirone Levels
two-edged sword. During times of economic stress or rising interest rates,
Total Short Ratio
Trade Volume Index
companies with a high debt ratio can experience financial problems. However,
Trendlines during good times, debt can enhance profitability by financing growth at a lower
TRIX cost.
Typical Price
Ultimate Oscillator Inventory Turnover. A company's inventory turnover is an efficiency ratio
Upside/Downside Ratio calculated by dividing cost of goods sold by inventories. It reflects how effectively
Upside-Downside Volume the company manages its inventories by showing the number of times per year
Vertical Horizontal Filter inventories are turned over (replaced). Of course, this type of ratio is highly
Volatility, Chaikin's dependent on the industry. A grocery store chain will have a much higher
Volume turnover than a commercial airplane manufacturer. As stated previously, it is
Volume Oscillator important to compare ratios with other companies in the same industry.
Weighted Close
Williams' Stock Price Valuation
Williams' %R After determining the condition and outlook of the economy, the industry, and the
Zig Zag company, the fundamental analyst is prepared to determine if the company's
Bibliography stock is overvalued, undervalued, or correctly valued.
About the Author
Several valuation models have been developed to help determine the value of a
stock. These include dividend models which focus on the present value of
expected dividends, earnings models which focuses on the present value of
expected earnings, and asset models which focus on the value of the company's
assets.

There is no doubt that fundamental factors play a major role in a stock's price.
However, if you form your price expectations based on fundamental factors, it is
important that you study the price history as well or you may end up owning an
undervalued stock that remains undervalued.



http://www.equis.com/free/taaz/fundamental.html [5/11/2001 3:16:33 am]

Gann Angles - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
GANN ANGLES
q Moving averages
q Indicators
Overview
q Market indicators W. D. Gann (1878-1955) designed several unique techniques for studying price
q Line studies
charts. Central to Gann's techniques was geometric angles in conjunction with
time and price. Gann believed that specific geometric patterns and angles had
q Periodicity unique characteristics that could be used to predict price action.
q The time element
q Conclusion
All of Gann's techniques require that equal time and price intervals be used on
the charts, so that a rise/run of 1 x 1 will always equal a 45 degree angle.
q Order the Book
q Learn more about
Technical Analysis
Interpretation
Reference Gann believed that the ideal balance between time and price exists when prices
Absolute Breadth Index rise or fall at a 45 degree angle relative to the time axis. This is also called a 1 x 1
Accumulation/Distribution angle (i.e., prices rise one price unit for each time unit).
Advance/Decline Line Gann Angles are drawn between a significant bottom and top (or vice versa) at
Advance/Decline Ratio various angles. Deemed the most important by Gann, the 1 x 1 trendline signifies
Advancing-Declining Issues a bull market if prices are above the trendline or a bear market if below. Gann felt
Advancing, Declining, that a 1 x 1 trendline provides major support during an up-trend and when the
Unchanged Volume trendline is broken, it signifies a major reversal in the trend. Gann identified nine
Andrews' Pitchfork
significant angles, with the 1 x 1 being the most important:
Arms Index
Average True Range
Bollinger Bands 1x8 - 82.5 degrees
Breadth Thrust
Bull/Bear Ratio 1x4 - 75 degrees
CANSLIM 1x3 - 71.25 degrees
Chaikin Oscillator
Commodity Channel Index 1x2 - 63.75 degrees
Correlation Analysis 1x1 - 45 degrees
Cycles 2x1 - 26.25 degrees
Demand Index
Detrended Price Oscillator 3x1 - 18.75 degrees
Dow Theory 4x1 - 15 degrees
Ease of Movement
Efficient Market Theory 8x1 - 7.5 degrees
Elliott Wave Theory
Equivolume Note that in order for the rise/run values (e.g., 1 x 1, 1 x 8, etc) to match the
Fibonacci Studies actual angles (in degrees), the x- and y-axes must have equally spaced intervals.
Four Percent Model This means that one unit on the x-axis (i.e., hour, day, week, month, etc) must be
Fourier Transform the same distance as one unit on the y-axis. The easiest way to calibrate the
Fundamental Analysis chart is make sure that a 1 x 1 angle produces a 45 degree angle.
Gann Angles
Herrick Payoff Index Gann observed that each of the angles can provide support and resistance
Interest Rates depending on the trend. For example, during an up-trend the 1 x 1 angle tends to
Kagi provide major support. A major reversal is signaled when prices fall below the 1 x
Large Block Ratio 1 angled trendline. According to Gann, prices should then be expected to fall to
the next trendline (i.e., the 2 x 1 angle). In other words, as one angle is
MACD
Mass Index
penetrated, expect prices to move and consolidate at the next angle.
Gann developed several techniques for studying market action. These include
Median Price
Gann Angles, Gann Fans, Gann Grids and Cardinal Squares.
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
Examples
New Highs-Lows
A Gann Fan displays lines at each of the angles that Gann identified. The
Cumulative following chart shows a Gann Fan on the S&P 500.
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Relative Strength Index You can see that the S&P bounced off the 1 x 1 and 2 x 1 lines.
Renko
Speed Resistance Lines This next chart shows the same S&P 500 data with a Gann Grid.
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R This is an 80 x 80 grid (each line on the grid is 1 x 1 and the lines are spaced 80
Zig Zag
weeks apart).
Bibliography
About the Author



http://www.equis.com/free/taaz/gannangles.html [5/11/2001 3:16:45 am]

Herrick Payoff Index - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
HERRICK PAYOFF INDEX
q Moving averages
q Indicators
Overview
q Market indicators The Herrick Payoff Index is designed to show the amount of money flowing into
q Line studies
or out of a futures contract. The Index uses open interest during its calculations,
therefore, the security being analyzed must contain open interest.
q Periodicity
q The time element The Herrick Payoff Index was developed by John Herrick.
q Conclusion
q Order the Book
Technical Analysis
When the Herrick Payoff Index is above zero, it shows that money is flowing into
the futures contract (which is bullish). When the Index is below zero, it shows that
Reference money is flowing out of the futures contract (which is bearish).
Accumulation/Distribution The interpretation of the Herrick Payoff Index involves looking for divergences
Accumulation Swing Index between the Index and prices.
Advancing, Declining, Example
Unchanged Volume
Andrews' Pitchfork The following chart shows the British Pound and the Herrick Payoff Index.
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform The trendlines identify a bearish divergence where prices were making new highs
Fundamental Analysis while the Payoff Index was failing to make new highs. As is typical with
Gann Angles
divergences, prices corrected to confirm the indicator.
Interest Rates
Kagi
Large Block Ratio Calculation
MACD The Herrick Payoff Index requires two inputs, a smoothing factor known as the
Mass Index "multiplying factor" and the "value of a one cent move."
McClellan Summation Index The multiplying factor is part of a smoothing mechanism. The results are similar
Median Price to the smoothing obtained by a moving average. For example, a multiplying factor
Member Short Ratio of ten produces results similar to a 10-period moving average.
Momentum
Money Flow Index Mr. Herrick recommends 100 as "the value of a one cent move" for all
Moving Averages commodities except silver, which should be 50.
New Highs-Lows The calculation of the Herrick Payoff Index ("HPI") is:
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume Where:
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/herrickpayoff.html [5/11/2001 3:16:50 am]

Interest Rates - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
INTEREST RATES
q Moving averages
q Indicators
Overview
q Market indicators Interest rates play a key role in the general business cycle and the financial
q Line studies
markets. When interest rates change, or interest rate expectations change, the
effects are far-reaching. When rates rise, consumers spend less which causes
q Periodicity retail sales to slow, which leads to reduced corporate profits, a declining stock
q The time element market, and higher unemployment.
q Conclusion
The effect of declining corporate profits on the stock market is compounded by
q Order the Book the fact that higher interest rates make interest-bearing investments more
q Learn more about attractive, causing an exodus of money from the stock market.
Technical Analysis

Reference Interpretation
Accumulation/Distribution Historically, an increase in interest rates is bearish for the stock market, whereas
Accumulation Swing Index a decrease is bullish.
Advance/Decline Ratio The following chart shows the 4-month rate-of-change of the Prime Rate and the
Advancing-Declining Issues Dow Industrials. I drew "buy" arrows when interest rates were falling (the
Advancing, Declining, indicator was below zero) and "sell" arrows when rates were rising. The arrows
Unchanged Volume show the strong correlation between interest rates and the stock market.
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Corporate Bond Rates
Fourier Transform
Just as governments issue bonds to fund their activities, so do corporations.
Gann Angles
Corporate bonds are considered riskier than Treasury Bonds and compensate for
Herrick Payoff Index their higher risk with higher yields. The yield of a specific corporate bond depends
Interest Rates on numerous factors, the most important is the financial health of the corporation
Kagi and prevailing interest rates. Several bond rating services provide investors with
Large Block Ratio an evaluation to help judge the bond's quality.
The Confidence Index, developed by Barron's in 1932, uses corporate bond
MACD
Mass Index
yields as one of its components. The Confidence Index attempts to measure the
"confidence" that investors have in the economy by comparing high grade bond
McClellan Summation Index yields to speculative grade bond yields.
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
Negative Volume Index If investors are optimistic about the economy, they are more likely to invest in
New Highs-Lows speculative bonds, thereby driving speculative bond yields down, and the
Cumulative Confidence Index up. On the other hand, if they are pessimistic about the
New Highs-New Lows economy, they are more likely to move their money from speculative grade bonds
to conservative high-grade bonds, thereby driving high-grade bond yields down
and the Confidence Index down.
Odd Lot Short Ratio
On Balance Volume
Open Interest
Discount Rate
Open-10 TRIN The Discount Rate is the interest rate that the Federal Reserve charges member
Option Analysis
banks for loans. Banks use the Discount Rate as the base for loans made to their
Overbought/Oversold
Parabolic SAR
customers. The Discount Rate is set by the Federal Reserve Board which
Patterns
consists of seven members appointed by the President of the United States.
Percent Retracement
Performance
The Discount Rate does not fluctuate on a day-to-day basis like most other
Point & Figure interest rates. Instead, it only changes when the Federal Reserve Board feels it is
Positive Volume Index necessary to influence the economy. During recessionary times, the Fed will
Price and Volume Trend ease interest rates to promote borrowing and spending. During inflationary times,
Price Oscillator the Fed will raise interest rates to discourage borrowing and spending, thereby
Price Rate-of-Change slowing the rise in prices.
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines Federal Funds
Relative Strength,
Comparative Banks with excess reserves can lend their reserves to banks with deficient
Relative Strength Index reserves at the Federal Funds Market. The interest rate charged for these short
Renko (often just overnight) loans is called the Fed Funds Rate.
Spreads
Standard Deviation Prime Rate
STIX
Stochastic Oscillator The Prime Rate is the interest rate U.S. banks charge their best corporate clients.
Swing Index Changes in the Prime Rate are almost always on the heels of a change in the
Three Line Break Discount Rate.
Tirone Levels
Total Short Ratio Treasury Bond Rates
Trade Volume Index
Trendlines An extremely important interest rate is the yield on 30-year Treasury Bonds
TRIX ("long bonds"). The U.S. Treasury Department auctions these bonds every six
Typical Price months.
Ultimate Oscillator
Upside/Downside Ratio Long bonds are the most volatile of all government bonds, because of the length
Upside-Downside Volume of their maturities--a small change in interest rates causes an amplified change in
Vertical Horizontal Filter the underlying bonds' price.
Volume
Volume Oscillator Treasury Bill Rates
Weighted Close Treasury Bills are short-term (13- and 26-week) money market instruments. They
Williams' are auctioned by the U.S. Treasury Department weekly and are often used as a
Accumulation/Distribution secure place to earn current market rates.
Williams' %R
Zig Zag
Bibliography
About the Author Example
The following chart shows several interest rates side-by-side.



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Kagi - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
KAGI
q Moving averages
q Indicators
Overview
q Market indicators Kagi charts are believed to have been created around the time that the Japanese
q Line studies
stock market began trading in the 1870s. Kagi charts display a series of
connecting vertical lines where the thickness and direction of the lines are
q Periodicity dependent on the price action. The charts ignore the passage of time.
q The time element
If prices continue to move in the same direction, the vertical line is extended.
q Conclusion However, if prices reverse by a "reversal" amount, a new kagi line is then drawn
q Order the Book in a new column. When prices penetrate a previous high or low, the thickness of
the kagi line changes.
q Learn more about
Technical Analysis
Kagi charts were brought to the United States by Steven Nison when he
published the book, Beyond Candlesticks.
Reference
Accumulation Swing Index Interpretation
Advance/Decline Ratio Kagi charts illustrate the forces of supply and demand on a security:
Advancing, Declining, q A series of thick lines shows that demand is exceeding supply (a rally).
Unchanged Volume
Andrews' Pitchfork q A series of thin lines shows that supply is exceeding demand (a decline).
Arms Index
Average True Range q Alternating thick and thin lines shows that the market is in a state of
Bollinger Bands equilibrium (i.e., supply equals demand).
Breadth Thrust
Bull/Bear Ratio The most basic trading technique for kagi charts is to buy when the kagi line
Candlesticks, Japanese changes from thin to thick and to sell when the kagi line changes from thick to
CANSLIM thin.
Chaikin Oscillator
Commodity Channel Index A sequence of higher-highs and higher-lows on a kagi chart shows the underlying
Commodity Selection Index forces are bullish. Whereas, lower-highs and lower-lows indicate underlying
Correlation Analysis weakness.
Cycles
Demand Index
Detrended Price Oscillator Example
Dow Theory The following chart shows a 0.02-point kagi chart and a classic bar chart of Euro
Ease of Movement Dollars.
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
Negative Volume Index I drew "buy" arrows on the bar chart when the kagi lines changed from thin to
New Highs-Lows thick and drew "sell" arrows when the lines changed from thick to thin.
Cumulative
New Highs-New Lows
Calculation
Odd Lot Purchases/Sales The first closing price in a kagi chart is the "starting price." To draw the first kagi
Odd Lot Short Ratio
line, today's close is compared to the starting price.
On Balance Volume
Open Interest
q If today's price is greater than or equal to the starting price, then a thick
Open-10 TRIN
Option Analysis
line is drawn from the starting price to the new closing price.
Overbought/Oversold
Parabolic SAR
q If today's price is less than or equal to the starting price, then a thin line is
Patterns
drawn from the starting price to the new closing price.
Percent Retracement
Performance
To draw subsequent lines, compare the closing price to the tip (i.e. bottom or top)
Point & Figure of the previous kagi line:
Price and Volume Trend q If the price continued in the same direction as the previous line, the line is
Price Oscillator extended in the same direction, no matter how small the move.
Public Short Ratio q If the price moved in the opposite direction by at least the reversal amount
Puts/Calls Ratio (this may take several days), then a short horizontal line is drawn to the
Quadrant Lines next column and a new vertical line is drawn to the closing price.
Relative Strength,
Comparative q If the price moved in the opposite direction of the current column by less
Relative Strength Index than the reversal amount no lines are drawn.
Renko
Speed Resistance Lines If a thin kagi line exceeds the prior high point on the chart, the line becomes thick.
Spreads Likewise, if a thick kagi line falls below the prior low point, the line becomes thin.
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/kagi.html [5/11/2001 3:17:02 am]

Large Block Ratio - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
LARGE BLOCK RATIO
q Moving averages
q Indicators
Overview
q Market indicators This market sentiment indicator shows the relationship between large block
q Line studies
trades, which are trades of more than 10,000 shares, and the total volume on the
New York Stock Exchange. The comparison of large block trades to total volume
q Periodicity shows how active the large institutional traders are.
q The time element
q Conclusion
The higher the Large Block Ratio, the more institutional activity is taking place. To
smooth out the day-to-day fluctuations, I recommend plotting a 20-day moving
q Order the Book average of the Large Block Ratio.
q Learn more about
Technical Analysis

Interpretation
Reference
Absolute Breadth Index A high number of Large Block trades in relation to total volume often coincides
Accumulation/Distribution with market tops and bottoms. This occurs as institutions recognize the extreme
Accumulation Swing Index overbought or oversold conditions of the market and place trades accordingly. Of
Advance/Decline Line course, this assumes the institutions know what they are doing!
Unchanged Volume Example
Andrews' Pitchfork
Arms Index The following chart shows the New York Stock Exchange Index and the Large
Average True Range Block Ratio.
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles I drew vertical lines when the Ratio was relatively high. You can see that these
Herrick Payoff Index points coincided with intermediate-term peaks.
Interest Rates
Kagi
Large Block Ratio
Calculation
MACD
Mass Index The Large Block Ratio is calculated by dividing the number of large block trades
McClellan Oscillator by the total volume on the New York Stock Exchange.
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/largeblockrat.html [5/11/2001 3:17:07 am]

Linear Regression Lines - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
LINEAR REGRESSION LINES
q Moving averages
q Indicators
Overview
q Market indicators Linear regression is a statistical tool used to predict future values from past
q Line studies
values. In the case of security prices, it is commonly used to determine when
prices are overextended.
q Periodicity
q The time element A Linear Regression trendline uses the least squares method to plot a straight
q Conclusion
line through prices so as to minimize the distances between the prices and the
resulting trendline.
q Order the Book
q Learn more about
Technical Analysis
Interpretation
Reference If you had to guess what a particular security's price would be tomorrow, a logical
Absolute Breadth Index guess would be "fairly close to today's price." If prices are trending up, a better
Accumulation/Distribution guess might be "fairly close to today's price with an upward bias." Linear
Accumulation Swing Index regression analysis is the statistical confirmation of these logical assumptions.
Advance/Decline Ratio A Linear Regression trendline is simply a trendline drawn between two points
Advancing-Declining Issues using the least squares fit method. The trendline is displayed in the exact middle
Advancing, Declining, of the prices. If you think of this trendline as the "equilibrium" price, any move
Unchanged Volume above or below the trendline indicates overzealous buyers or sellers.
Andrews' Pitchfork
Arms Index A popular method of using the Linear Regression trendline is to construct Linear
Average True Range
Regression Channel lines. Developed by Gilbert Raff, the channel is constructed
Bollinger Bands
Breadth Thrust
by plotting two parallel, equidistant lines above and below a Linear Regression
Bull/Bear Ratio
trendline. The distance between the channel lines to the regression line is the
Candlesticks, Japanese greatest distance that any one closing price is from the regression line.
CANSLIM Regression Channels contain price movement, with the bottom channel line
Chaikin Oscillator providing support and the top channel line providing resistance. Prices may
Commodity Channel Index extend outside of the channel for a short period of time. However if prices remain
Commodity Selection Index outside the channel for a longer period of time, a reversal in trend may be
Correlation Analysis imminent.
Cycles A Linear Regression trendline shows where equilibrium exists. Linear Regression
Demand Index Channels show the range prices can be expected to deviate from a Linear
Detrended Price Oscillator Regression trendline.
Dow Theory The Time Series Forecast indicator displays the same information as a Linear
Ease of Movement
Regression trendline. Any point along the Time Series Forecast is equal to the
Elliott Wave Theory
ending value of a Linear Regression Trendline. For example, the ending value of
Envelopes (trading bands) a Linear Regression trendline that covers 10 days will have the same value as a
Equivolume 10-day Time Series Forecast.
Fibonacci Studies
Four Percent Model
Fourier Transform
Fundamental Analysis Example
Gann Angles
Herrick Payoff Index The following chart shows the Japanese Yen with a Linear Regression Channel.
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold Calculation The linear regression formula is:
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure Where:
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/linearegression.html [5/11/2001 3:17:12 am]

MACD - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
MACD
q Moving averages
q Indicators
Overview
q Market indicators The MACD ("Moving Average Convergence/Divergence") is a trend following
q Line studies
momentum indicator that shows the relationship between two moving averages of
prices. The MACD was developed by Gerald Appel, publisher of Systems and
q Periodicity
Forecasts.
q The time element
q Conclusion The MACD is the difference between a 26-day and 12-day exponential moving
q Order the Book
average. A 9-day exponential moving average, called the "signal" (or "trigger")
line is plotted on top of the MACD to show buy/sell opportunities. (Appel specifies
q Learn more about exponential moving averages as percentages. Thus, he refers to these three
Technical Analysis
moving averages as 7.5%, 15%, and 20% respectively.)

Reference
Interpretation
The MACD proves most effective in wide-swinging trading markets. There are
Advance/Decline Ratio three popular ways to use the MACD: crossovers, overbought/oversold
Advancing-Declining Issues conditions, and divergences.
Unchanged Volume
Andrews' Pitchfork
Crossovers
Arms Index
Average True Range
The basic MACD trading rule is to sell when the MACD falls below its signal line.
Bollinger Bands Similarly, a buy signal occurs when the MACD rises above its signal line. It is also
Breadth Thrust popular to buy/sell when the MACD goes above/below zero.
Bull/Bear Ratio
CANSLIM
Overbought/Oversold Conditions
Chaikin Oscillator
The MACD is also useful as an overbought/oversold indicator. When the shorter
Commodity Selection Index moving average pulls away dramatically from the longer moving average (i.e., the
Correlation Analysis MACD rises), it is likely that the security price is overextending and will soon
Cumulative Volume Index return to more realistic levels. MACD overbought and oversold conditions exist
Cycles vary from security to security.
Demand Index
Directional Movement Divergences
Dow Theory
Ease of Movement A indication that an end to the current trend may be near occurs when the MACD
Efficient Market Theory diverges from the security. A bearish divergence occurs when the MACD is
Elliott Wave Theory making new lows while prices fail to reach new lows. A bullish divergence occurs
Envelopes (trading bands) when the MACD is making new highs while prices fail to reach new highs. Both of
Equivolume these divergences are most significant when they occur at relatively
Fibonacci Studies overbought/oversold levels.
Four Percent Model
Fourier Transform
Gann Angles
Example
Interest Rates The following chart shows Whirlpool and its MACD.
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold I drew "buy" arrows when the MACD rose above its signal line and drew "sell"
Parabolic SAR when the MACD fell below its signal line.
Patterns
Percent Retracement This chart shows that the MACD is truly a trend following indicator--sacrificing
Performance early signals in exchange for keeping you on the right side of the market. When a
Point & Figure significant trend developed, such as in October 1993 and beginning in February
1994, the MACD was able to capture the majority of the move. When the trend
Price Oscillator
was short lived, such as in January 1993, the MACD proved unprofitable.
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Calculation
Relative Strength,
Comparative
The MACD is calculated by subtracting the value of a 26-day exponential moving
average from a 12-day exponential moving average. A 9-day dotted exponential
Renko moving average of the MACD (the "signal" line) is then plotted on top of the
Speed Resistance Lines MACD.
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/macd.html [5/11/2001 3:17:17 am]

Mass Index - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
MASS INDEX
q Moving averages
q Indicators
Overview
q Market indicators The Mass Index was designed to identify trend reversals by measuring the
q Line studies
narrowing and widening of the range between the high and low prices. As this
range widens, the Mass Index increases; as the range narrows the Mass Index
q Periodicity decreases.
q The time element
q Conclusion
The Mass Index was developed by Donald Dorsey.
q Order the Book
Learn more about
q

Technical Analysis
Interpretation
According to Mr. Dorsey, the most significant pattern to watch for is a "reversal
Reference bulge." A reversal bulge occurs when a 25-period Mass Index rises above 27.0
Absolute Breadth Index and subsequently falls below 26.5. A reversal in price is then likely. The overall
Accumulation/Distribution price trend (i.e., trending or trading range) is unimportant.
Advance/Decline Line A 9-period exponential moving average of prices is often used to determine
Advance/Decline Ratio whether the reversal bulge indicates a buy or sell signal. When the reversal bulge
Advancing-Declining Issues occurs, you should buy if the moving average is trending down (in anticipation of
Advancing, Declining, the reversal) and sell if it is trending up.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range Example
Bollinger Bands
Breadth Thrust The following chart shows Litton and its Mass Index.
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates A 9-day exponential moving average is plotted on top of Litton's prices. I drew
Kagi arrows when a reversal bulge occurred (i.e., the Mass Index rose above 27 and
Large Block Ratio then fell below 26.5). If the 9-day moving average was falling, I drew a "buy"
Linear Regression Lines arrow. If the 9-day moving average was rising, I drew a "sell" arrow.
MACD
Mass Index You can see that the signals generated by the Mass Index during this time period
McClellan Oscillator occurred a few days before the trend reversed.
Median Price
Member Short Ratio
Money Flow Index
Moving Averages
Negative Volume Index To calculate the Mass Index:
New Highs-Lows
Cumulative 1. Calculate a 9-day exponential moving average ("EMA") of the difference
New Highs-New Lows between the high and low prices.
Odd Lot Balance Index 2. Calculate a 9-day exponential moving average of the moving average
Odd Lot Purchases/Sales calculated in Step 1.
Odd Lot Short Ratio
On Balance Volume 3. Divide the moving average calculated in Step 1 by the moving average
Open Interest calculated in Step 2.
Open-10 TRIN
Option Analysis 4. Total the values in Step 3 for the number of periods in the Mass Index
Overbought/Oversold (e.g., 25 days).
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/massindex.html [5/11/2001 3:17:23 am]

McClellan Oscillator - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
McCLELLAN OSCILLATOR
q Moving averages
q Indicators
Overview
q Market indicators The McClellan Oscillator is a market breadth indicator that is based on the
q Line studies
smoothed difference between the number of advancing and declining issues on
the New York Stock Exchange.
q Periodicity
q The time element The McClellan Oscillator was developed by Sherman and Marian McClellan.
q Conclusion
Extensive coverage of the oscillator is provided in their book Patterns for Profit.
q Order the Book
q Learn more about
Indicators that use advancing and declining issues to determine the amount of
Reference participation in the movement of the stock market are called "breadth" indicators.
Absolute Breadth Index A healthy bull market is accompanied by a large number of stocks making
Accumulation/Distribution moderate upward advances in price. A weakening bull market is characterized by
Accumulation Swing Index a small number of stocks making large advances in price, giving the false
Advance/Decline Line appearance that all is well. This type of divergence often signals an end to the
bull market. A similar interpretation applies to market bottoms, where the market
index continues to decline while fewer stocks are declining.
Unchanged Volume
Andrews' Pitchfork
The McClellan Oscillator is one of the most popular breadth indicators (another
Arms Index
popular breadth indicator is the Advance/Decline Line). Buy signals are typically
Average True Range generated when the McClellan Oscillator falls into the oversold area of -70 to
Bollinger Bands -100 and then turns up. Sell signals are generated when the oscillator rises into
Breadth Thrust the overbought area of +70 to +100 and then turns down.
Bull/Bear Ratio
Candlesticks, Japanese If the oscillator goes beyond these areas (i.e., rises above +100 or falls below
CANSLIM -100), it is a sign of an extremely overbought or oversold condition. These
Chaikin Oscillator extreme readings are usually a sign of a continuation of the current trend.
Commodity Selection Index For example, if the oscillator falls to -90 and turns up, a buy signal is generated.
Correlation Analysis However, if the oscillator falls below -100, the market will probably trend lower
Cumulative Volume Index during the next two or three weeks. You should postpone buying until the
Cycles
oscillator makes a series of rising bottoms or the market regains strength.
Demand Index
Dow Theory
Ease of Movement
Example
Efficient Market Theory The following chart illustrates the five "trading zones" of the McClellan Oscillator
Elliott Wave Theory (i.e., above +100, between +70 and +100, between +70 and -70, between -70
Envelopes (trading bands) and -100, and below -100).
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
This next chart shows the McClellan Oscillator and the Dow Industrials.
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko I drew "buy" arrows when the Oscillator rose above -70 and "sell" arrows when
Speed Resistance Lines the Oscillator fell below +70. This indicator does an excellent job of timing entry
Spreads and exit points.
Standard Deviation
STIX
Swing Index
Three Line Break Calculation
Tirone Levels The McClellan Oscillator is the difference between 10% (approximately 19-day)
Total Short Ratio and 5% (approximately 39-day) exponential moving averages of advancing minus
Trade Volume Index declining issues.
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/mcclellanosc.html [5/11/2001 3:17:30 am]

McClellan Summation Index - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
McCLELLAN SUMMATION INDEX
q Moving averages
q Indicators
Overview
q Market indicators The McClellan Summation Index is a market breath indicator based on the
q Line studies
McClellan Oscillator.
q Periodicity The McClellan Summation Index was developed by Sherman and Marian
q The time element McClellan. Extensive coverage of the index is provided in their book Patterns for
q Conclusion Profit.
q Order the Book
q Learn more about
The McClellan Summation Index is a long-term version of the McClellan
Reference Oscillator. Its interpretation is similar to that of the McClellan Oscillator except
that it is more suited to major trend reversals.
As explained in the Calculation section, there are two methods to calculate the
Summation Index. The two calculation methods create indicators with identical
appearances, but their numeric values differ. These interpretational comments
Advancing, Declining, refer to the "suggested" calculation method explained in the Calculation section.
Unchanged Volume
Andrews' Pitchfork McClellan suggests the following rules for use with the Summation Index:
Arms Index
Average True Range q Look for major bottoms when the Summation Index falls below -1,300.
Bollinger Bands
Breadth Thrust q Look for major tops to occur when a divergence (page 29) with the market
Bull/Bear Ratio occurs above a Summation Index level of +1,600.
CANSLIM q The beginning of a significant bull market is indicated when the
Chaikin Oscillator Summation Index crosses above +1,900 after moving upward more than
Commodity Channel Index 3,600 points from its prior low (e.g., the index moves from -1,600 to
Commodity Selection Index +2,000).
Cycles
Demand Index Example
Directional Movement The following chart shows the McClellan Summation Index and the New York
Dow Theory Stock Exchange Index.
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
At the point labeled "A," the Summation Index fell below -1,300. This signified a
New Highs-Lows
major bottom. The point labeled "B" indicated the beginning of a significant bull
Cumulative market, because the Summation Index rose above +1,900 after moving upward
New Highs-New Lows more than 3,600 points from its prior low.
Odd Lot Short Ratio
Calculation
On Balance Volume The McClellan Summation Index can be calculated using two different methods.
Open Interest
This first method is the suggested method promoted by Mr. McClellan. It
Open-10 TRIN
Option Analysis
subtracts 10% (approximately 19-day) and 5% (approximately 39-day)
Overbought/Oversold
exponential moving averages of advancing minus declining issues from the
Parabolic SAR McClellan Oscillator.
Patterns
Percent Retracement
Performance
Point & Figure
Price and Volume Trend Where:
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Relative Strength Index The second method is to calculate a cumulative sum of the McClellan Oscillator
Renko values:
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/mcclellansum.html [5/11/2001 3:17:36 am]

Median Price - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
MEDIAN PRICE
q Moving averages
q Indicators
Overview
q Market indicators The Median Price indicator is simply the midpoint of each day's price. The Typical
q Line studies Price and Weighted Close are similar indicators.
q Periodicity
q The time element
q Conclusion
Interpretation
q Order the Book The Median Price indicator provides a simple, single-line chart of the day's
q Learn more about "average price." This average price is useful when you want a simpler view of
Technical Analysis prices.

Reference
Absolute Breadth Index Example
Accumulation Swing Index The following chart shows the Median Price indicator (dotted line) on top of
Advance/Decline Line Keycorp's bar chart.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Envelopes (trading bands) Calculation The Median Price indicator is calculated by adding the high and
Equivolume low price and dividing by two.
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/medianprice.html [5/11/2001 3:17:41 am]

Member Short Ratio - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
MEMBER SHORT RATIO
q Moving averages
q Indicators
Overview
q Market indicators The Member Short Ratio ("MSR") is a market sentiment indicator that measures
q Line studies
the short selling activity of members of the New York Stock Exchange.
"Members" trade on the floor of the exchange either for their own account or for
q Periodicity their clients. Stocks are sold short in anticipation of the price falling.
q The time element
q Conclusion
Knowing what the "smart money" is doing (e.g., members) is often a good
indication of the near-term market direction.
q Order the Book
q Learn more about The MSR is the inverse of the Public Short Ratio. This is because there are only
Technical Analysis two players in the market, the Public and the Members (Members are further
divided into Special-ists and Others). When the Public Short Ratio is 20%, the
Member Short Ratio must be 80%.
Reference
Accumulation Swing Index Interpretation
Advance/Decline Ratio Because the MSR is the inverse of the PSR, interpretation of the MSR is the
Advancing-Declining Issues opposite of the PSR. When the members are short (a high MSR), you should be
short and when the members are long (a low MSR), you should be long. For
Unchanged Volume
Andrews' Pitchfork
more information on interpreting the MSR, refer to the discussion on the Public
Arms Index Short Ratio.
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio Calculation
CANSLIM The Member Short Ratio is calculated by dividing the number of member shorts
Chaikin Oscillator (defined as total short sales minus public short sales) by the total number of short
Commodity Channel Index sales. The resulting figure shows the percentage of shorts that were made by
Commodity Selection Index members of the New York Stock Exchange.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/membershortrat.html [5/11/2001 3:17:45 am]

Momentum - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
MOMENTUM
q Moving averages
q Indicators
Overview
q Market indicators The Momentum indicator measures the amount that a security's price has
q Line studies
changed over a given time span.
q Periodicity
q The time element
q Conclusion
Interpretation
The interpretation of the Momentum indicator is identical to the interpretation of
q Order the Book
the Price ROC. Both indicators display the rate-of-change of a security's price.
q Learn more about However, the Price ROC indicator displays the rate-of-change as a percentage
Technical Analysis
whereas the Momentum indicator displays the rate-of-change as a ratio.

Reference
There are basically two ways to use the Momentum indicator:
q You can use the Momentum indicator as a trend-following oscillator similar
to the MACD (this is the method I prefer). Buy when the indicator bottoms
Advance/Decline Line and turns up and sell when the indicator peaks and turns down. You may
Advance/Decline Ratio want to plot a short-term (e.g., 9-period) moving average of the indicator to
Advancing-Declining Issues determine when it is bottoming or peaking.
Unchanged Volume If the Momentum indicator reaches extremely high or low values (relative
Andrews' Pitchfork to its historical values), you should assume a continuation of the current
Arms Index trend. For example, if the Momentum indicator reaches extremely high
Average True Range values and then turns down, you should assume prices will probably go
Bollinger Bands still higher. In either case, only trade after prices confirm the signal
Breadth Thrust generated by the indicator (e.g., if prices peak and turn down, wait for
Bull/Bear Ratio prices to begin to fall before selling).
CANSLIM q You can also use the Momentum indicator as a leading indicator. This
Chaikin Oscillator
method assumes that market tops are typically identified by a rapid price
increase (when everyone expects prices to go higher) and that market
bottoms typically end with rapid price declines (when everyone wants to
Cumulative Volume Index get out). This is often the case, but it is also a broad generalization.
Cycles
Demand Index As a market peaks, the Momentum indicator will climb sharply and then fall
Detrended Price Oscillator off-- diverging from the continued upward or sideways movement of the
Directional Movement price. Similarly, at a market bottom, Momentum will drop sharply and then
Dow Theory begin to climb well ahead of prices. Both of these situations result in
Ease of Movement divergences between the indicator and prices.
Elliott Wave Theory
Equivolume Example
Fibonacci Studies
Four Percent Model The following chart shows Integrated Circuits and its 12-day Momentum indicator.
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio Divergences at points "A" and "B" provided leading indications of the reversals
On Balance Volume that followed.
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/momentum.html [5/11/2001 3:17:50 am]

Money Flow Index - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
MONEY FLOW INDEX
q Moving averages
q Indicators
Overview
q Market indicators The Money Flow Index ("MFI") is a momentum indicator that measures the
q Line studies
strength of money flowing in and out of a security. It is related to the Relative
Strength Index, but where the RSI only incorporates prices, the Money Flow
q Periodicity
Index accounts for volume.
q The time element
q Conclusion
q Learn more about
Technical Analysis
The interpretation of the Money Flow Index is as follows:

q Look for divergence between the indicator and the price action. If the price
Reference trends higher and the MFI trends lower (or vice versa), a reversal may be
Absolute Breadth Index imminent.
Accumulation Swing Index q Look for market tops to occur when the MFI is above 80. Look for market
Advance/Decline Line bottoms to occur when the MFI is below 20.
Andrews' Pitchfork
Arms Index The following chart shows Intel and its 14-day Money Flow Index.
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Divergences at points "A" and "B" provided leading indications of the reversals
Gann Angles that followed.
Interest Rates
Kagi
Large Block Ratio Calculation
MACD The Money Flow Index requires a series of calculations. First, the period's Typical
Mass Index Price is calculated.
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
Next, Money Flow (not the Money Flow Index) is calculated by multiplying the
Negative Volume Index period's Typical Price by the volume.
New Highs-Lows
Cumulative
New Highs-New Lows
New Highs/Lows Ratio If today's Typical Price is greater than yesterday's Typical Price, it is considered
Positive Money Flow. If today's price is less, it is considered Negative Money
Odd Lot Short Ratio
Flow.
On Balance Volume
Open Interest
Positive Money Flow is the sum of the Positive Money over the specified number
Open-10 TRIN
of periods. Negative Money Flow is the sum of the Negative Money over the
Option Analysis specified number of periods.
Overbought/Oversold
Parabolic SAR The Money Ratio is then calculated by dividing the Positive Money Flow by the
Patterns Negative Money Flow.
Percent Retracement
Performance
Point & Figure
Price Oscillator Finally, the Money Flow Index is calculated using the Money Ratio.
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/moneyflow.html [5/11/2001 3:17:58 am]

Moving Averages - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
MOVING AVERAGES
q Moving averages
q Indicators
Overview
q Market indicators A Moving Average is an indicator that shows the average value of a security's
q Line studies
price over a period of time. When calculating a moving average, a mathematical
analysis of the security's average value over a predetermined time period is
q Periodicity made. As the security's price changes, its average price moves up or down.
q The time element
q Conclusion
There are five popular types of moving averages: simple (also referred to as
arithmetic), exponential, triangular, variable, and weighted. Moving averages can
q Order the Book be calculated on any data series including a security's open, high, low, close,
q Learn more about volume, or another indicator. A moving average of another moving average is
Technical Analysis also common.

The only significant difference between the various types of moving averages is
Reference the weight assigned to the most recent data. Simple moving averages apply
Absolute Breadth Index equal weight to the prices. Exponential and weighted averages apply more
Accumulation/Distribution weight to recent prices. Triangular averages apply more weight to prices in the
middle of the time period. And variable moving averages change the weighting
based on the volatility of prices.
Unchanged Volume
Andrews' Pitchfork
Interpretation
Arms Index
Average True Range
The most popular method of interpreting a moving average is to compare the
Bollinger Bands
relationship between a moving average of the security's price with the security's
Breadth Thrust price itself. A buy signal is generated when the security's price rises above its
Bull/Bear Ratio moving average and a sell signal is generated when the security's price falls
Candlesticks, Japanese below its moving average.
CANSLIM
Chaikin Oscillator The following chart shows the Dow Jones Industrial Average ("DJIA") from 1970
Commodity Channel Index through 1993.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index Also displayed is a 15-month simple moving average. "Buy" arrows were drawn
McClellan Oscillator when the DJIA's close rose above its moving average; "sell" arrows were drawn
McClellan Summation Index when it closed below its moving average.
Median Price
Member Short Ratio This type of moving average trading system is not intended to get you in at the
Momentum exact bottom nor out at the exact top. Rather, it is designed to keep you in line
Money Flow Index with the security's price trend by buying shortly after the security's price bottoms
Moving Averages and selling shortly after it tops.
New Highs-Lows The critical element in a moving average is the number of time periods used in
Cumulative
calculating the average. When using hindsight, you can always find a moving
New Highs-New Lows
average that would have been profitable (using a computer, I found that the
optimum number of months in the preceding chart would have been 43). The key
Odd Lot Purchases/Sales is to find a moving average that will be consistently profitable. The most popular
Odd Lot Short Ratio moving average is the 39-week (or 200-day) moving average. This moving
On Balance Volume average has an excellent track record in timing the major (long-term) market
Open Interest cycles.
Open-10 TRIN
Option Analysis The length of a moving average should fit the market cycle you wish to follow. For
Overbought/Oversold example if you determine that a security has a 40-day peak to peak cycle, the
Parabolic SAR ideal moving average length would be 21 days calculated using the following
Patterns formula:
Percent Retracement
Performance
Point & Figure
Price Oscillator
Price Rate-of-Change Table 7
Public Short Ratio
Puts/Calls Ratio Trend Moving Average
Quadrant Lines
Relative Strength, Very Short Term 5-13 days
Comparative
Relative Strength Index Short Term 14-25 days
Renko
Speed Resistance Lines Minor Intermediate 26-49 days
Spreads
Standard Deviation Intermediate 50-100 days
STIX
Stochastic Oscillator Long Term 100-200 days
Swing Index
Three Line Break You can convert a daily moving average quantity into a weekly moving average
quantity by dividing the number of days by 5 (e.g., a 200-day moving average is
Tirone Levels
Total Short Ratio
almost identical to a 40-week moving average). To convert a daily moving
Trade Volume Index
average quantity into a monthly quantity, divide the number of days by 21 (e.g., a
Trendlines 200-day moving average is very similar to a 9-month moving average, because
TRIX there are approximately 21 trading days in a month).
Typical Price
Ultimate Oscillator Moving averages can also be calculated and plotted on indicators. The
Upside/Downside Ratio interpretation of an indicator's moving average is similar to the interpretation of a
Upside-Downside Volume security's moving average: when the indicator rises above its moving average, it
Vertical Horizontal Filter signifies a continued upward movement by the indicator; when the indicator falls
Volatility, Chaikin's below its moving average, it signifies a continued downward movement by the
Volume indicator.
Volume Oscillator
Volume Rate-of-Change Indicators which are especially well-suited for use with moving average
Weighted Close penetration systems include the MACD, Price ROC, Momentum, and Stochastics.
Williams'
Accumulation/Distribution Some indicators, such as short-term Stochastics, fluctuate so erratically that it is
Williams' %R difficult to tell what their trend really is. By erasing the indicator and then plotting
Zig Zag
a moving average of the indica-tor, you can see the general trend of the indicator
Bibliography
About the Author
rather than its day-to-day fluctuations.

Whipsaws can be reduced, at the expense of slightly later signals, by plotting a
short-term moving average (e.g., 2-10 day) of oscillating indicators such as the
12-day ROC, Stochas-tics, or the RSI. For example, rather than selling when the
Stochastic Oscillator falls below 80, you might sell only when a 5-period moving
average of the Stochastic Oscillator falls below 80.

Example
The following chart shows Lincoln National and its 39-week exponential moving
average.

Although the moving average does not pinpoint the tops and bottoms perfectly, it
does provide a good indication of the direction prices are trending.

Calculation
The following sections explain how to calculate moving averages of a security's
price using the various calculation techniques.

Simple
A simple, or arithmetic, moving average is calculated by adding the closing price
of the security for a number of time periods (e.g., 12 days) and then dividing this
total by the number of time periods. The result is the average price of the security
over the time period. Simple moving averages give equal weight to each daily
price.

For example, to calculate a 21-day moving average of IBM: First, you would add
IBM's closing prices for the most recent 21 days. Next, you would divide that sum
by 21; this would give you the average price of IBM over the preceding 21 days.
You would plot this average price on the chart. You would perform the same
calculation tomorrow: add up the previous 21 days' closing prices, divide by 21,
and plot the resulting figure on the chart.

Where:

Exponential
An exponential (or exponentially weighted) moving average is calculated by
applying a percentage of today's closing price to yesterday's moving average
value. Exponential moving averages place more weight on recent prices.

For example, to calculate a 9% exponential moving average of IBM, you would
first take today's closing price and multiply it by 9%. Next, you would add this
product to the value of yesterday's moving average multiplied by 91% (100% -
9% = 91%).

Because most investors feel more comfortable working with time periods, rather
than with percentages, the exponential percentage can be converted into an
approximate number of days. For example, a 9% moving average is equal to a
21.2 time period (rounded to 21) exponential moving average.

The formula for converting exponential percentages to time periods is:

You can use the above formula to determine that a 9% moving average is
equivalent to a 21-day exponential moving average:

The formula for converting time periods to exponential percentages is:

You can use the above formula to determine that a 21-day exponential moving
average is actually a 9% moving average:

Triangular
Triangular moving averages place the majority of the weight on the middle portion
of the price series. They are actually double-smoothed simple moving averages.
The periods used in the simple moving averages varies depending on if you
specify an odd or even number of time periods.

The following steps explain how to calculate a 12-period triangular moving
average.

1. Add 1 to the number of periods in the moving average (e.g., 12 plus 1 is
13).

2. Divide the sum from Step #1 by 2 (e.g., 13 divided by 2 is 6.5).

3. If the result of Step #2 contains a fractional portion, round the result up to
the nearest integer (e.g., round 6.5 up to 7).

4. Using the value from Step #3 (i.e., 7), calculate a simple moving average
of the closing prices (i.e., a 7-period simple moving average).
5. Again using the value from Step #3 (i.e., 7) calculate a simple moving
average of the moving average calculated in Step #4 (i.e., a moving
average of a moving average).

Variable
A variable moving average is an exponential moving average that automatically
adjusts the smoothing percentage based on the volatility of the data series. The
more volatile the data, the more sensitive the smoothing constant used in the
moving average calculation. Sensitivity is increased by giving more weight given
to the current data.

Most moving average calculation methods are unable to compensate for trading
range versus trending markets. During trading ranges (when prices move
sideways in a narrow range) shorter term moving averages tend to produce
numerous false signals. In trending markets (when prices move up or down over
an extended period) longer term moving averages are slow to react to reversals
in trend. By automatically adjusting the smoothing constant, a variable moving
average is able to adjust its sensitivity, allowing it to perform better in both types
of markets.

A variable moving average is calculated as follows:

Where:

Different indicators have been used for the Volatility Ratio. I use a ratio of the
VHF indicator compared to the VHF indicator 12 periods ago. The higher this
ratio, the "trendier" the market, thereby increasing the sensitivity of the moving
average.

The variable moving average was defined by Tushar Chande in an article that
appeared in Technical Analysis of Stocks and Commodities in March, 1992.

Weighted
A weighted moving average is designed to put more weight on recent data and
less weight on past data. A weighted moving average is calculated by multiplying
each of the previous day's data by a weight. The following table shows the
calculation of a 5-day weighted moving average.

Table 8

5-day Weighted moving average
Day # Weight Price Weighted Average
1 1 * 25.00 = 25.00
2 2 * 26.00 = 52.00
3 3 * 28.00 = 84.00
4 4 * 25.00 = 100.00
5 5 * 29.00 = 145.00
Totals: 15 * 133.00 = 406.00 / 15 = 27.067

The weight is based on the number of days in the moving average. In the above
example, the weight on the first day is 1.0 while the value on the most recent day
is 5.0. This gives five times more weight to today's price than the price five days
ago.

The following chart displays 25-day moving averages using the simple,
exponential, weighted, triangular, and variable methods of calculation.



http://www.equis.com/free/taaz/movingaverages.html [5/11/2001 3:18:04 am]

Negative Volume Index - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
NEGATIVE VOLUME INDEX
q Moving averages
q Indicators
Overview
q Market indicators The Negative Volume Index ("NVI") focuses on days where the volume
q Line studies
decreases from the previous day. The premise being that the "smart money"
takes positions on days when volume decreases.
q Periodicity
q The time element
q Order the Book
q Learn more about
The interpretation of the NVI assumes that on days when volume increases, the
Technical Analysis crowd-following "uninformed" investors are in the market. Conversely, on days
with decreased volume, the "smart money" is quietly taking positions. Thus, the
NVI displays what the smart money is doing.
Reference
Absolute Breadth Index In Stock Market Logic, Norman Fosback points out that the odds of a bull market
Accumulation/Distribution are 95 out of 100 when the NVI rises above its one-year moving average. The
Accumulation Swing Index odds of a bull market are roughly 50/50 when the NVI is below its one-year
Advance/Decline Line average. Therefore, the NVI is most usefuly as a bull market indicator.
Andrews' Pitchfork
Arms Index The following chart shows Avon and its NVI. I drew "buy" arrows whenever the
Average True Range NVI crossed above its 1-year (255-trading day) moving average.
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles I drew "equal-signs" when the NVI fell below the moving average. You can see
Herrick Payoff Index that the NVI did a great job of identifying profitable opportunities.
Interest Rates
Kagi
Large Block Ratio
Calculation
MACD
Mass Index
If today's volume is less than yesterday's volume then:
Median Price
Member Short Ratio
Momentum
Money Flow Index If today's volume is greater than or equal to yesterday's volume then:
Moving Averages
New Highs-Lows
Cumulative Because falling prices are usually associated with falling volume, the NVI usually
New Highs-New Lows
trends downward.
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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http://www.equis.com/free/taaz/negvolind.html [5/11/2001 3:18:09 am]

New Highs-Lows Cumulative - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
NEW HIGHS-LOWS CUMULATIVE
q Moving averages
q Indicators
Overview
q Market indicators The New Highs-Lows Cumulative indicator is a long-term market momentum
q Line studies
indicator. It is a cumulative total of the difference between the number of stocks
reaching new 52-week highs and the number of stocks reaching new 52-week
q Periodicity lows.
q The time element
q Conclusion
q Learn more about
Technical Analysis The New High-Low Cumulative indicator provides a confirmation of the current
trend. Most of the time, the indicator will move in the same direction as major
market indicies. However, when the indicator and market move in opposite
Reference directions, it is likely that the market will reverse.
Accumulation/Distribution The interpretation of the New Highs-Lows Cumulative indicator is similar to the
Accumulation Swing Index Advance/Decline Line in that divergences occur when the indicator fails to
Advance/Decline Line confirm the market index's high or low. Divergences during an up-trending market
indicate potential weakness, while divergences in a down-trending market
indicate potential strength.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Example
Bollinger Bands
Breadth Thrust
The following chart shows the S&P 500 and the New Highs-Lows Cumulative
Bull/Bear Ratio
indicator.
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio A classic divergence occurred during 1985 and 1986 where the S&P 500 Index
Linear Regression Lines was making new highs, but the New Highs-Lows Cumulative indicator was failing
MACD to surpass its previous highs. This was followed by the crash of 1987.
Mass Index
Median Price
Calculation
Member Short Ratio
Momentum
The New Highs-Lows Cumulative indicator is simply a cumulative total of the
Money Flow Index number of stocks making new 52-week highs minus the number of stocks making
Moving Averages new 52-week lows.
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/newhighslowscum.html [5/11/2001 3:18:19 am]

New Highs-New Lows - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
NEW HIGHS-NEW LOWS
q Moving averages
q Indicators
Overview
q Market indicators The New Highs-New Lows indicator ("NH-NL") displays the daily difference
q Line studies
between the number of stocks reaching new 52-week highs and the number of
stocks reaching new 52-week lows.
q Periodicity
q The time element
q Order the Book
q Learn more about
You can interpret the NH-NL indicator as a divergence indicator or as an
Technical Analysis oscillator. I usually plot a 10-day moving average of the NH-NL indicator to
smooth the daily values.

Reference
Divergence
Accumulation Swing Index The NH-NL indicator generally reaches its extreme lows slightly before a major
Advance/Decline Line market bottom. As the market then turns up from the major bottom, the indicator
Advance/Decline Ratio jumps up rapidly. During this period, many new stocks are making new highs
Advancing-Declining Issues because it's easy to make a new high when prices have been depressed for a
Advancing, Declining, long time.
Unchanged Volume
Andrews' Pitchfork As the cycle matures, a divergence often occurs as fewer and fewer stocks are
Arms Index making new highs (the indicator falls), yet the market indices continue to reach
Average True Range new highs. This is a classic bearish divergence that indicates that the current
Bollinger Bands upward trend is weak and may reverse.
Breadth Thrust
Bull/Bear Ratio
Candlesticks, Japanese Oscillator
CANSLIM
Chaikin Oscillator The NH-NL indicator oscillates around zero. If the indicator is positive, the bulls
Commodity Channel Index are in control. If it is negative, the bears are in control. You can trade the NH-NL
Commodity Selection Index indicator by buying and selling as the indicators passes through zero. This won't
Correlation Analysis always keep you on the right side of the market, but it is helpful to confirm the
current trend.
Cycles
Demand Index
Dow Theory
Example
Ease of Movement
The following chart shows the S&P 500 and a 10-day moving average of the
Elliott Wave Theory
NH-NL indicator.
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative I used the NH-NL indicator to confirm a traditional moving average trading
New Highs-New Lows
system. I drew "buy" arrows when the S&P 500 rose above its 50-day moving
average, but only if the 10-day moving average of the NH-NL indicator was above
zero. I drew "sell" arrows anytime the S&P 500 fell below its moving average.
Odd Lot Short Ratio
On Balance Volume
By ignoring buy signals unless the 10-day moving average of the NH-NL indicator
Open Interest was above zero, I reduced the number of trades by 50% and increased profits by
Open-10 TRIN 9%.
Option Analysis
Overbought/Oversold
Parabolic SAR
Percent Retracement
Performance The New Highs-New Lows is calculated by simply taking the difference between
Point & Figure the number of stocks that made new 52-week highs and the number of stocks
Positive Volume Index that made new 52-week lows. I usually plot a 10-day moving average of this
Price and Volume Trend value.
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/newhighslows.html [5/11/2001 3:18:27 am]

New Highs/Lows Ratio - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
NEW HIGHS/LOWS RATIO
q Moving averages
q Indicators
Overview
q Market indicators The New Highs/Lows Ratio ("NH/NL Ratio") displays the daily ratio between the
q Line studies
number of stocks reaching new 52-week highs and the number of stocks
reaching new 52-week lows.
q Periodicity
q The time element
q Order the Book
q Learn more about
The NH/NL Ratio is another useful method to visualize the relationship of stocks
Technical Analysis that are making new highs and new lows. High readings indicate that a large
number of stocks are making new highs (compared to the number of stocks
making new lows). Readings less than one indicate that the number of stocks
Reference making new highs are less than the number of stocks making lows.
Accumulation/Distribution Refer to the New Highs-New Lows indicator for more information on interpreting
Accumulation Swing Index the NH/NL Ratio.
Unchanged Volume
Andrews' Pitchfork The following chart shows the S&P 500 and the NH/NL Ratio.
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Fundamental Analysis The Ratio increased dramatically when the S&P 500 began making new highs in
Gann Angles
1990. However, as the S&P has continued to move on to new highs, the Ratio
Interest Rates
has failed to reach new highs. This implies that the S&P 500 is weaker than it
Kagi
appears.
Large Block Ratio
MACD Calculation
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/newhighslowsrat.html [5/11/2001 3:18:34 am]

Odd Lot Balance Index - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ODD LOT BALANCE INDEX
q Moving averages
q Indicators
Overview
q Market indicators The Odd Lot Balance Index ("OLBI") is a market sentiment indicator that shows
q Line studies
the ratio of odd lot sales to purchases (an "odd lot" is a stock transaction of less
than 100 shares). The assumption is that the "odd lotters," the market's smallest
q Periodicity traders, don't know what they are doing.
q The time element
q Conclusion
(Unfortunately, the trading of 99 share lots in an effort to skirt the "up-tick" rule,
which requires that specialists take short positions only when prices move
q Order the Book upward, has rendered odd lot indicators less reliable.)
q Learn more about
Technical Analysis

Interpretation
Reference
Absolute Breadth Index When the Odd Lot Balance Index is high, odd lotters are selling more than they
Accumulation/Distribution are buying and are therefore bearish on the market. To trade contrarily to the odd
Accumulation Swing Index lotters, you should buy when they are selling (as indicated by a high OLBI) and
Advance/Decline Line sell when the odd lotters are bullish and buying (as indicated by a low OLBI).
Advancing-Declining Issues You can smooth day-to-day fluctuations of the Odd Lot Balance Index by plotting
Advancing, Declining, a 10-day moving average of the Index.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Bollinger Bands
Breadth Thrust The following chart shows the S&P 500 and a 10-day moving average of the Odd
Bull/Bear Ratio Lot Balance Index.
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
I drew a vertical line when the odd lotters were excessively pessimistic--which
Mass Index turned out to be a good time to buy.
Median Price Calculation
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/oddlotbalind.html [5/11/2001 3:18:43 am]

Odd Lot Purchases/Sales - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ODD LOT PURCHASES/SALES
q Moving averages
q Indicators
Overview
q Market indicators Both of these indicators, Odd Lot Purchases and Odd Lot Sales, display what
q Line studies
their names imply: the number of shares (in thousands) purchased or sold in odd
lots. An "odd lot" is a stock transaction of less than 100 shares.
q Periodicity
q The time element (Unfortunately, the trading of 99 share lots in an effort to skirt the "up-tick" rule,
q Conclusion
which requires that specialists take short positions only when prices move
upward, has rendered Odd Lot indicators less reliable.)
q Order the Book
q Learn more about
Technical Analysis
Interpretation
Reference The odd lot trade numbers are used in several different ratios and indicators. By
Absolute Breadth Index themselves, they show the investment activities of the odd lot traders. Being a
Accumulation/Distribution contrarian indicator, a high number of Odd Lot Purchases is generally considered
Accumulation Swing Index bearish, whereas a high number of Odd Lot Sales is considered bullish. The idea
Advance/Decline Line is to act opposite of the small, uninformed odd lot traders.
Advancing-Declining Issues However, it has been my experience that, for whatever reason, the odd lotters
Advancing, Declining, have tended to be on the right side of the market recently.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Bollinger Bands
Breadth Thrust The following chart shows the Value Line Composite Index and a 10-day moving
Bull/Bear Ratio average of Odd Lot Sales.
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD I drew vertical lines when the odd lotters were selling (as identified by relatively
Mass Index high moving average values). Conventional odd lot interpretation would have you
McClellan Oscillator buy at these points. However, in retrospect, it appears that these were
McClellan Summation Index appropriate short-term selling points.
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/oddlotpurchsale.html [5/11/2001 3:18:50 am]

Odd Lot Short Ratio - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ODD LOT SHORT RATIO
q Moving averages
q Indicators
Overview
q Market indicators The Odd Lot Short Ratio ("OLSR") is a market sentiment indicator that displays
q Line studies
the daily ratio of odd lot short sales compared to odd lot buy/sell transactions.
q Periodicity Investors "short" a stock in anticipation of the stock's price falling. Instead of the
q The time element traditional transaction of buying at a lower price and profiting by selling at a
q Conclusion
higher price, the short sale transaction is just the opposite. To profit from a short
sale, the stock must be sold at a higher price and bought (covered) at a lower
q Order the Book price An "odd lot" short is a short sale transaction involving less than 100 shares.
q Learn more about
Technical Analysis

Interpretation
Reference
Absolute Breadth Index If we could find an investor who was always wrong and do the exact opposite of
Accumulation/Distribution him, we would always be right! Odd lot indicators strive to do just that. If we
Accumulation Swing Index assume that small investors ("odd lotters") are inexperienced (and thus usually
Advance/Decline Line wrong), then trading contrarily to the odd lot traders should be profit-able.
Advancing-Declining Issues The higher the OLSR indicator, the higher the percentage of odd lot shorts and
Advancing, Declining, the more likely the market will rise (proving the odd lotters wrong). Similarly, the
Unchanged Volume lower the OLSR, the more likely a market decline.
Andrews' Pitchfork
Arms Index Generally this rule (invest contrarily to the odd lotters) has held true. Odd lotters
Average True Range
tend to be reactive rather than proactive. High Odd Lot Short Ratios tend to come
Bollinger Bands
Breadth Thrust
after major market declines (when investors should be buying, not selling) and
Bull/Bear Ratio
low readings usually come after long market advances.
CANSLIM
In 1986, the number of odd lot shorts reached levels that were unheard of. The
Chaikin Oscillator explanation I have heard for this is that specialists are placing multiple odd lot
Commodity Channel Index short orders to avoid the up-tick rule which states that a short order must be
Commodity Selection Index processed on an up tick. They do this on days with major declines in prices.
Cumulative Volume Index If this explanation is true, it drastically complicates the interpretation of all odd lot
Cycles indicators. It would mean that the odd lot indicators show what the "littlest" guy is
Demand Index doing, except when it reaches extreme readings in which case it would show
Detrended Price Oscillator what the "biggest" guy (the members) is doing.
Dow Theory
Ease of Movement
Efficient Market Theory Example
Elliott Wave Theory
Envelopes (trading bands) Refer to the examples inside the explanation of the Odd Lot Balance Index and
Equivolume Odd Lot Purchases/Sales.
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Calculation
Interest Rates
The Odd Lot Short Ratio is calculated by dividing the number of odd lot short
Kagi
sales by the average number of odd lot transactions for the day. (Because odd
Large Block Ratio lots do not necessarily have a buyer and a seller for every transaction, we
Linear Regression Lines calculate the average number of transactions by adding the number of odd lot
MACD buy orders with the number of odd lot sell orders and then dividing by two.)
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/oddlotshortrat.html [5/11/2001 3:18:54 am]

On Balance Volume - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ON BALANCE VOLUME
q Moving averages
q Indicators
Overview
q Market indicators On Balance Volume ("OBV") is a momentum indicator that relates volume to
q Line studies
price change.
q Periodicity On Balance Volume was developed by Joe Granville and originally presented in
q The time element his book New Strategy of Daily Stock Market Timing for Maximum Profits.
q Conclusion
q Order the Book
Technical Analysis
On Balance Volume is a running total of volume. It shows if volume is flowing into
or out of a security. When the security closes higher than the previous close, all
Reference of the day's volume is considered up-volume. When the security closes lower
Absolute Breadth Index than the previous close, all of the day's volume is considered down-volume.
Accumulation Swing Index A full explanation of OBV is beyond the scope of this book. If you would like
Advance/Decline Line further information on OBV analysis, I recommend that you read Granville's book,
Advance/Decline Ratio New Strategy of Daily Stock Market Timing for Maximum Profits.
The basic assumption, regarding OBV analysis, is that OBV changes precede
Unchanged Volume
Andrews' Pitchfork
price changes. The theory is that smart money can be seen flowing into the
Arms Index
security by a rising OBV. When the public then moves into the security, both the
Average True Range security and the OBV will surge ahead.
Bollinger Bands
Breadth Thrust If the security's price movement precedes OBV movement, a "non-confirmation"
Bull/Bear Ratio has occurred. Non-confirma-tions can occur at bull market tops (when the
Candlesticks, Japanese security rises without, or before, the OBV) or at bear market bottoms (when the
CANSLIM security falls without, or before, the OBV).
Chaikin Oscillator
Commodity Channel Index The OBV is in a rising trend when each new peak is higher than the previous
Commodity Selection Index peak and each new trough is higher than the previous trough. Likewise, the OBV
Correlation Analysis is in a falling trend when each successive peak is lower than the previous peak
Cumulative Volume Index and each successive trough is lower than the previous trough. When the OBV is
Cycles moving sideways and is not making successive highs and lows, it is in a doubtful
Demand Index trend. [See Figure 47]
Dow Theory Figure 47
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
Once a trend is established, it remains in force until it is broken. There are two
MACD ways in which the OBV trend can be broken. The first occurs when the trend
Mass Index changes from a rising trend to a falling trend, or from a falling trend to a rising
McClellan Oscillator trend.
Median Price The second way the OBV trend can be broken is if the trend changes to a
Member Short Ratio doubtful trend and remains doubtful for more than three days. Thus, if the
Momentum security changes from a rising trend to a doubtful trend and remains doubtful for
Money Flow Index only two days before changing back to a rising trend, the OBV is consid-ered to
Moving Averages have always been in a rising trend.
New Highs-Lows When the OBV changes to a rising or falling trend, a "breakout" has occurred.
Cumulative Since OBV breakouts normally precede price breakouts, investors should buy
New Highs-New Lows long on OBV upside breakouts. Likewise, investors should sell short when the
OBV makes a downside breakout. Positions should be held until the trend
changes (as explain-ed in the preceding paragraph).
Odd Lot Short Ratio
On Balance Volume
This method of analyzing On Balance Volume is designed for trading short-term
Open Interest
cycles. According to Granville, investors must act quickly and decisively if they
Open-10 TRIN wish to profit from short-term OBV analysis.
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Example
Percent Retracement
Performance The following chart shows Pepsi and the On Balance Volume indicator. I have
Point & Figure labeled the OBV Up, Down, and Doubtful trends.
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price A falling trend, as you will recall, is defined by lower peaks and lower troughs.
Ultimate Oscillator Conversely, a rising trend is defined by higher peaks and higher troughs.
Volatility, Chaikin's Calculation
Volume
Volume Oscillator On Balance Volume is calculated by adding the day's volume to a cumulative
Volume Rate-of-Change total when the security's price closes up, and subtracting the day's volume when
Weighted Close the security's price closes down.
Williams'
Accumulation/Distribution If today's close is greater than yesterday's close then:
Williams' %R
Zig Zag
Bibliography
About the Author
If today's close is less than yesterday's close then:

If today's close is equal to yesterday's close then:



http://www.equis.com/free/taaz/onbalanvol.html [5/11/2001 3:19:06 am]

Open Interest - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
OPEN INTEREST
q Moving averages
q Indicators
Overview
q Market indicators Open Interest is the number of open contracts of a given future or option contract.
q Line studies
An open contract can be a long or short contract that has not been exercised,
closed out, or allowed to expire. Open interest is really more of a data field than
q Periodicity
an indicator.
q The time element
q Conclusion A fact that is sometimes overlooked is that a futures contract always involves a
buyer and a seller. This means that one unit of open interest always represents
q Order the Book
two people, a buyer and a seller.
q Learn more about
Technical Analysis Open interest increases when a buyer and seller create a new contract. This
happens when the buyer initiates a long position and the seller initiates a short
position. Open interest decreases when the buyer and seller liquidate existing
Reference contracts. This happens when the buyer is selling an existing long position and
the seller is covering an existing short position.
Interpretation
By itself, open interest only shows the liquidity of a specific contract or market.
Unchanged Volume
Andrews' Pitchfork
However, combining volume analysis with open interest sometimes provides
Arms Index
subtle clues to the flow of money in and out of the market:
Average True Range
Bollinger Bands
q Rising volume and rising open interest confirm the direction of the current
Breadth Thrust trend.
Bull/Bear Ratio
Candlesticks, Japanese q Falling volume and falling open interest signal that an end to the current
CANSLIM trend may be imminent.
Chaikin Oscillator
Correlation Analysis Example
Cycles The following chart shows Copper, open interest (the solid line), and volume (the
Demand Index dotted line).
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio The open interest is for all copper contracts, not just the current contract.
Momentum
Money Flow Index I drew a trendline ("A") when both open interest and volume were increasing.
Moving Averages This confirmed the upward trend of prices as shown by the trendline ("B").
New Highs-Lows I then drew a vertical line ("C") when open interest and volume began to diverge.
Cumulative
From this point, volume continued to increase while open interest decreased
New Highs-New Lows
sharply. This warned of an end to the rising trend.
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/openinterest.html [5/11/2001 3:19:11 am]

Open-10 TRIN - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
OPEN-10 TRIN
q Moving averages
q Indicators
Overview
q Market indicators The Open-10 TRIN is a smoothed variation of the Arms Index. It is a market
q Line studies breadth indicator that uses advancing/declining volume and advancing/declining
issues to measure the strength of the market.
q Periodicity
q The time element
Conclusion
q
Interpretation
q Order the Book
q Learn more about The interpretation of Open-10 TRIN (also called the Open Trading Index) is
Technical Analysis similar to the interpretation of the "normal" TRIN.

Readings above 0.90 are generally con-sidered bearish and readings below 0.90
Reference are considered bullish.
Accumulation/Distribution The following table was reprinted from Peter Eliades' Stock Market Cycles. It
Accumulation Swing Index shows what the DJIA did after the 10-day TRIN rose above the level of one.
Advance/Decline Line Impressive...
Advancing-Declining Issues Table 9
Unchanged Volume 1st Reading gt; 1.0 Days to Final Low Next Market Move
Andrews' Pitchfork
Arms Index May 23, 1984 3 60-point rally
Average True Range
Bollinger Bands June 15, 1984 1 63-point rally
Breadth Thrust
Bull/Bear Ratio July 20, 1984 3 165-point rally
CANSLIM October 10, 1984 0 88-point rally
Chaikin Oscillator
Commodity Channel Index November 16, 1984 1 45-point rally
Correlation Analysis December 5, 1984 3 69-point rally
Cycles January 3, 1985 1 130-point rally
Demand Index
March 15, 1985 1 48-point rally
Dow Theory
April 30, 1985 2 96-point rally
Ease of Movement
June 19, 1985 3 78-point rally
Elliott Wave Theory
Envelopes (trading bands) I created a similar table for the period 1985 through 1988. The table appears
Equivolume below.
Fibonacci Studies
Four Percent Model Table 10
Fourier Transform
Fundamental Analysis 1st Reading gt; 1.0 Days to Final Low Next Market Move
Gann Angles
Herrick Payoff Index June 19, 1985 0 60-point rally
Interest Rates
Kagi January 8, 1986 2 302-point rally
Large Block Ratio
Linear Regression Lines April 30, 1986 N/A 16 point rally
MACD
Mass Index July 15, 1986 0 41-point rally
McClellan Summation Index September 11, 1986 1 141-point rally
Median Price
Member Short Ratio
January 2, 1987 0 445-point rally
Momentum
Money Flow Index
October 15, 1987 2 289-point rally
Moving Averages
November 13, 1987 4 68-point rally
New Highs-Lows November 27, 1987 5 285-point rally
Cumulative
New Highs-New Lows January 14, 1988 5 285-point rally
Odd Lot Balance Index February 8, 1988 5 79-point rally
Odd Lot Short Ratio March 11, 1988 0 53-point rally
On Balance Volume
Open Interest April 4, 1988 0 127-point rally
Open-10 TRIN
Option Analysis May 12, 1988 0 39-point rally
Overbought/Oversold
Parabolic SAR May 17, 1988 4 211-point rally
Patterns
Percent Retracement July 1, 1988 N/A 78-point rally
Performance
Point & Figure August 12, 1988 7 111-point rally
November 16, 1988 0 309-point rally
Price Oscillator
October 30, 1989 5 171-point rally
Public Short Ratio
December 18, 1989 2 109-point rally
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Relative Strength Index Calculation
Renko
Speed Resistance Lines The Open-10 TRIN is calculated by keeping a 10-day total of each of the TRIN's
Spreads components before performing the TRIN calculation.
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/open10trin.html [5/11/2001 3:19:16 am]

Option Analysis - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
OPTION ANALYSIS
q Moving averages
q Indicators
Overview
q Market indicators The most widely used option pricing model is the Black-Scholes option valuation
q Line studies
model which was developed by Fisher Black and Myron Scholes in 1973.
q Periodicity The Black-Scholes model helps determine the fair market value of an option
q The time element based on the security's price and volatility, time until expiration, and the current
q Conclusion
market interest rate. The following assumptions were made by Black and Scholes
when the model was developed:
q Order the Book
q Learn more about 1. Markets are "frictionless." In other words, there are no transaction costs or
Technical Analysis taxes; all market participants may borrow and lend at the "riskless" rate of
interest; there are no penalties for short selling; and all securities are
infinitely divisible (i.e., fractional shares can be purchased).
Reference
Absolute Breadth Index 2. Stock prices are lognormally distributed (i.e., they follow a bell curve). This
Accumulation/Distribution means that a stock can double in price as easily as it can drop to half its
Accumulation Swing Index price.
Advance/Decline Ratio 3. Stocks do not pay dividends or make any distributions. (The model is often
Advancing-Declining Issues modified to allow for dividend adjustments.)
Unchanged Volume 4. The option can only be exercised on the expiration date.
Andrews' Pitchfork
Arms Index The components of the option model are security price, volatility, option life,
Average True Range
market interest rate, and dividend (if any).
Bollinger Bands
Breadth Thrust
I suggest you refer to the book Option Volatility and Pricing Strategies, by
Bull/Bear Ratio
Candlesticks, Japanese Sheldon Natenberg for more information on calculations and strategies using the
CANSLIM Black-Scholes model.
Chaikin Oscillator
Correlation Analysis Interpretation
Cycles
Demand Index
Put/Call Price
The Put/Call Price is the main output of the Black-Scholes model. It shows how
Dow Theory much an option should sell for based on the various components that make up
Ease of Movement the model (e.g., volatility, option life, security price, etc). It helps answer the
Efficient Market Theory question, "Is the option overpriced or underpriced?"
Elliott Wave Theory
Envelopes (trading bands) The usefulness of the Put/Call Price is basically two-fold:
Equivolume
Fibonacci Studies 1. It helps you locate mispriced options. The option purchaser can use the
Four Percent Model model to find options that are underpriced. The option writer can use the
Fourier Transform model to find options that are overpriced.
Gann Angles 2. It helps you form a riskless hedge to earn arbitrage profits. For example,
Herrick Payoff Index you could buy undervalued calls and then short the underlying stock. This
Interest Rates creates a riskless hedge because regardless of whether the security's
Kagi price goes up or down, the two positions will exactly offset each other. You
Large Block Ratio would then wait for the option to return to its fair market value to earn
arbitrage profits.
MACD
Mass Index
Delta (below) is used to determine the number of shares to purchase in order to
form a riskless hedge.
Median Price
Member Short Ratio
Momentum
Delta
Money Flow Index Delta shows the amount that the option's price will change if the underlying
Moving Averages
security's price changes by $1.00.
New Highs-Lows
For example, if XYZ is selling for $25.00/share, a call option on XYZ is selling for
Cumulative
New Highs-New Lows
$2.00 and the Delta is 75%, then the option's price should increase $0.75 (to
$2.75) if the price of XYZ increases to $26.00/share. In other words, the option
Odd Lot Balance Index should go up $0.75 for each $1.00 that XYZ goes up.
Odd Lot Short Ratio If an option is deep in-the-money, then it will have a high Delta, because almost
On Balance Volume all of the gain/loss in the security will be reflected in the option price. Conversely,
Open Interest deep out-of-the-money options will have a low Delta, because very little of the
Open-10 TRIN gain/loss in the security is reflected in the option price.
Option Analysis
Overbought/Oversold If you don't have a computer, the rough rule-of-thumb for calculating Delta is:
Parabolic SAR 75% for an option $5.00 in the money, 50% for an option at the money, and %25
Patterns for an option $5.00 out of the money.
Percent Retracement
Performance As an in-the-money option nears expiration, the Delta will approach 100%
Point & Figure because the amount of time remaining for the option to move out-of-the-money is
Positive Volume Index small.
Price Oscillator Delta is also used to determine the correct number of shares to buy/short to form
Price Rate-of-Change a "riskless hedge." For example, suppose the Delta on a put option is 66%. A
Public Short Ratio
riskless hedge would result from owning a ratio of two-thirds (66%) a position in
Puts/Calls Ratio
Quadrant Lines
stock (i.e., 66 shares) to every one long position in a put option contract. If the
Relative Strength,
stock price goes up one point, then the stock position will increase $66.00. This
Comparative $66.00 increase should be exactly offset by a $66.00 decrease in the value of the
Relative Strength Index put option contract.
Renko
Speed Resistance Lines As discussed on earlier, forming a riskless hedge gives the investor the potential
Spreads of earning arbitrage profits, by profiting from the undervalued option's return to its
Standard Deviation fair market value (i.e., the price at which the option is neither overpriced nor
STIX underpriced). Theoretically, the market will eventually value underpriced options
Stochastic Oscillator at their fair market value . However, it should be noted that high transaction costs
Swing Index may undermine this theory.
Three Line Break
Tirone Levels Gamma
Total Short Ratio
Trade Volume Index Gamma shows the anticipated change in Delta, given a one point increase in the
Trendlines underlying security. Thus, it shows how responsive Delta is to a change in the
TRIX underlying security's price. For example, a Gamma of four indicates that the
Typical Price Delta will increase four points (e.g., from 50% to 54%) for each one point
Ultimate Oscillator increase in the underlying security's price.
Upside-Downside Volume Gamma indicates the amount of risk involved with an option position. A large
Vertical Horizontal Filter Gamma indicates higher risk, because the value of the option can change more
Volatility, Chaikin's quickly. However, a trader may desire higher risk depending on the strategy
Volume employed.
Volume Oscillator
Weighted Close Option Life
Williams'
Accumulation/Distribution Option Life shows the number of days until expiration. Generally speaking, the
Williams' %R longer the time until expiration, the more valuable the option.
Zig Zag
Bibliography A graph of Option Life appears as a stepped line from the upper-left to the
About the Author lower-right side of the screen. The reason the line is stepped is because of
weekends and holidays. For example, on Friday there may be 146 days to
expiration and on the following Monday only 143 days remaining.

Theta
Theta shows the change in the option's price (in points) due to the effect of time
alone. The longer the time until expiration, the less effect that time has on the
price of the option. However, as the option nears expiration, the effect can be
great, particularly on out-of-the-money options. Theta is also referred to as "time
decay."

For example, a Theta value of -0.0025 means that the option lost 1/4 of one cent
due to the passage of time alone.

The effect of time on the option price is almost always positive. The more time
until expiration the better chance the option has of being in-the-money at
expiration. The only exception to this positive relationship is deep in-the-money
put options with an expiration date far into the future.

All other things being equal, options with low Thetas are more preferable (for
purchase) than are those with high Thetas.

Vega
Vega shows the change in the option price due to an assumed 1% increase in
the underlying security's volatility. Vega shows the dollar amount of gain that
should be expected if the volatility goes up one point (all else being equal).

The effect of volatility on the option price is always positive. The greater the
volatility of the underlying security, the better chance the option has of being
in-the-money at expiration. Therefore, options with higher volatilities will cost
more than those with lower volatilities.

Since Vega measures the sensitivity of an option to a change in volatility, options
with higher Vegas are more preferable (for purchase) than those with low Vegas.

Volatility
Volatility is a measurement that shows the degree of fluctuation that a security
experiences over a given time frame. Wide price movements over a short time
frame are characteristic of high volatility stocks.

Volatility is the only input parameter of the Black-Scholes model (e.g., security
price, volatility, option life, market interest rate) that is calculated, yet the
accuracy of the model is highly dependent on a good Volatility figure. The best
measurement of volatility is the one that captures future price movements. But if
we knew what future price movements would be, we would care less about the
Black-Scholes model--we'd be trading! However, reality forces us to estimate
volatility. There are two ways to estimate volatility for use with the Black-Scholes
model: Historical Volatility and Implied Volatility.

Historical Volatility measures the actual volatility of the security's prices using a
standard deviation based formula. It shows how volatile prices have been over
the last x-time periods. The advantage of histocial volatility is that can be
calculated using only historical security prices. When you calculate the
Black-Scholes put/call price using historial volatililty, most options appear
overpriced.

A more widely used measure of option volatility is called Implied Volatility. Implied
Volatility is the amount of volatility that the option market is assuming (i.e.,
implying) for the option. To calculate implied volatility, the actual option price,
security price, strike price, and the option expiration date are plugged into the
Black-Scholes formula. The formula then solves for the implied volatility.

Options of high volatility stocks are worth more (i.e., carry higher premiums) than
those with low volatility, because of the greater chance the option has of moving
in-the-money by expiration. Option purchasers normally prefer options with high
volatilities and option writers normally prefer options with low volatilities (all else
being equal).

Calculation
For exact mathematical formulas used in calculating option values, I recommend
Option Volatility and Pricing Strategies by Sheldon Natenberg.

The formula for the Black-Scholes option pricing model is widely available in
many books and publications. The original work by Black and Scholes was only
done on equity call options. Since their work was originally published, extensions
of their model have been developed, such as models for put options and options
on futures. Gamma, Theta, and Vega calculations are all extensions of the
original Black-Scholes model.

Adjusting the model for dividends provides a more accurate calculation of the
option's fair market value. A popular adjustment method assumes that dividend
payments are paid out continuously.



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Overbought/Oversold - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
OVERBOUGHT/OVERSOLD
q Moving averages
q Indicators
Overview
q Market indicators The Overbought/Oversold ("OB/OS") indicator is a market breadth indicator
q Line studies
based on the smoothed difference between advancing and declining issues.
q Periodicity
q The time element
q Conclusion
Interpretation
q Order the Book The OB/OS indicator shows when the stock market is overbought (and a
q Learn more about
correction is due) and when it is oversold (and a rally is due).
Technical Analysis
Readings above +200 are generally considered bearish and readings below -200
are generally considered bullish. When the OB/OS indicator falls below +200 a
Reference sell signal is generated. Similarly, a buy signal is generated when the OB/OS
Absolute Breadth Index indicator rises above -200.
Accumulation Swing Index As with all OB/OS-type indicators, extreme readings may be a sign of a change in
Advance/Decline Line investor expectations and may not be followed by the expected correction. (Refer
Advance/Decline Ratio to the discussion on the Advance/Decline Ratio, and the McClellan Oscillator, for
Advancing-Declining Issues additional comments on extremely overbought/oversold conditions.)
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Example
Bollinger Bands The following chart shows the DJIA and the Overbought/Oversold indicator.
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi I drew "buy" and "sell" arrows when the indicator penetrated the +200/-200 levels.
Large Block Ratio The OB/OS indicator works very well in this type of trading-range market.
MACD
Mass Index
McClellan Oscillator Calculation
Median Price The Overbought/Oversold indicator is a 10-period exponential moving average of
Member Short Ratio the difference between the number of advancing and declining issues.
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/ovrbotovrsold.html [5/11/2001 3:19:30 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
PARABOLIC SAR
q Moving averages
q Indicators
Overview
q Market indicators The Parabolic Time/Price System, developed by Welles Wilder, is used to set
q Line studies
trailing price stops and is usually referred to as the "SAR" (stop-and-reversal).
This indicator is explained thoroughly in Wilder's book, New Concepts in
q Periodicity
q The time element
q Conclusion
q Learn more about
Technical Analysis The Parabolic SAR provides excellent exit points. You should close long
positions when the price falls below the SAR and close short positions when the
price rises above the SAR.
Reference
Absolute Breadth Index If you are long (i.e., the price is above the SAR), the SAR will move up every day,
Accumulation/Distribution regardless of the direction the price is moving. The amount the SAR moves up
depends on the amount that prices move.
Unchanged Volume
Example
Andrews' Pitchfork
The following chart shows Compaq and its Parabolic SAR.
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform You should be long when the SAR is below prices and short when it is above
Fundamental Analysis prices.
Gann Angles
Herrick Payoff Index The Parabolic SAR is plotted as shown in Wilder's book. Each SAR stop level
Interest Rates point is displayed on the day in which it is in effect. Note that the SAR value is
Kagi today's, not tomorrow's stop level.
Large Block Ratio
MACD
Mass Index Calculation
McClellan Summation Index It is beyond the scope of this book to explain the calculation of the Parabolic
Median Price SAR. Refer to Wilder's book New Concepts in Technical Trading, for detailed
Member Short Ratio
calculation information.
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



www.equis.comission.gif" WIDTH=175 HEIGHT=50
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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
PATTERNS
q Moving averages
q Indicators
Overview
q Market indicators A basic principle of technical analysis is that security prices move in trends. We
q Line studies
also know that trends do not last forever. They eventually change direction and
when they do, they rarely do so on a dime. Instead, prices typically decelerate,
q Periodicity pause, and then reverse. These phases occur as investors form new
q The time element expectations and by doing so, shift the security's supply/demand lines.
q Conclusion
The changing of expectations often causes price patterns to emerge. Although no
q Order the Book two markets are identical, their price patterns are often very similar. Predictable
q Learn more about price behavior often follows these price patterns.
Technical Analysis
Chart patterns can last from a few days to many months or even years. Generally
speaking, the longer a pattern takes to form, the more dramatic the ensuing price
Reference move.
Advance/Decline Line Interpretation
Advancing-Declining Issues The following sections explain some of the more common price patterns. For
Advancing, Declining, more information on chart patterns, I suggest the book, Technical Analysis of
Unchanged Volume
Andrews' Pitchfork
Stock Trends by Robert Edwards and John Magee.
Arms Index
Average True Range
Bollinger Bands
Head-and-Shoulders
Breadth Thrust
Bull/Bear Ratio
The Head-and-Shoulders price pattern is the most reliable and well-known chart
pattern. It gets its name from the resemblance of a head with two shoulders on
CANSLIM either side. The reason this reversal pattern is so common is due to the manner
Chaikin Oscillator in which trends typically reverse.
Commodity Selection Index A up-trend is formed as prices make higher-highs and higher-lows in a stair-step
Correlation Analysis fashion. The trend is broken when this upward climb ends. As you can see in the
Cumulative Volume Index following illustration, the "left shoulder" and the "head" are the last two
Cycles higher-highs.
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
The right shoulder is created as the bulls try to push prices higher, but are unable
Momentum
to do so. This signifies the end of the up-trend. Confirmation of a new down-trend
Money Flow Index occurs when the "neckline" is penetrated.
Moving Averages
Negative Volume Index During a healthy up-trend, volume should increase during each rally. A sign that
New Highs-Lows the trend is weakening occurs when the volume accompanying rallies is less than
Cumulative the volume accompanying the preceding rally. In a typical Head-and-Shoulders
New Highs-New Lows pattern, volume decreases on the head and is especially light on the right
New Highs/Lows Ratio shoulder.
Odd Lot Purchases/Sales Following the penetration of the neckline, it is very common for prices to return to
Odd Lot Short Ratio the neckline in a last effort to continue the up-trend (as shown in the preceding
On Balance Volume chart). If prices are then unable to rise above the neckline, they usually decline
Open Interest rapidly on increased volume.
Open-10 TRIN
Option Analysis An inverse (or upside-down) Head-and-Shoulders pattern often coincides with
Overbought/Oversold market bottoms. As with a normal Head-and-Shoulders pattern, volume usually
Parabolic SAR
decreases as the pattern is formed and then increases as prices rise above the
Patterns
Percent Retracement
neckline.
Performance
Point & Figure
Rounding Tops and Bottoms
Price and Volume Trend Rounding tops occur as expectations gradually shift from bullish to bearish. The
Price Oscillator
gradual, yet steady shift forms a rounded top. Rounding bottoms occur as
Public Short Ratio
expectations gradually shift from bearish to bullish.
Puts/Calls Ratio
Quadrant Lines
Volume during both rounding tops and rounding bottoms often mirrors the
Relative Strength,
bowl-like shape of prices during a rounding bottom. Volume, which was high
Comparative during the previous trend, decreases as expectations shift and traders become
Relative Strength Index indecisive. Volume then increases as the new trend is established.
Renko
Speed Resistance Lines The following chart shows Goodyear and a classic rounding bottom formation.
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Triangles
Bibliography
About the Author
A triangle occurs as the range between peaks and troughs narrows. Triangles
typically occur as prices encounter a support or resistance level which constricts
the prices.

A "symmetrical triangle" occurs when prices are making both lower-highs and
higher-lows. An "ascending triangle" occurs when there are higher-lows (as with
a symmetrical triangle), but the highs are occurring at the same price level due to
resistance. The odds favor an upside breakout from an ascending triangle. A
"descending triangle" occurs when there are lower-highs (as with a symmetrical
triangle), but the lows are occurring at the same price level due to support. The
odds favor a downside breakout from a descending triangle.

Just as pressure increases when water is forced through a narrow opening, the
"pressure" of prices increases as the triangle pattern forms. Prices will usually
breakout rapidly from a triangle. Breakouts are confirmed when they are
accompanied by an increase in volume.

The most reliable breakouts occur somewhere between half and three-quarters of
the distance between the beginning and end (apex) of the triangle. There are
seldom many clues as to the direction prices will break out of a symmetrical
triangle. If prices move all the way through the triangle to the apex, a breakout is
unlikely.

The following chart shows Boeing and a descending triangle.

Note the strong downside breakout on increased volume.

Double Tops and Bottoms
A double top occurs when prices rise to a resistance level on significant volume,
retreat, and subsequently return to the resistance level on decreased volume.
Prices then decline marking the beginning of a new down-trend.

A double bottom has the same characteristics as a double top except it is
upside-down.

The following chart shows Caterpillar and a double bottom pattern.



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
PERCENT RETRACEMENT
q Moving averages
q Indicators
Overview
q Market indicators A characteristic of a healthy bull market is that it makes higher-highs and
q Line studies
higher-lows. This indicates a continual upward shift in expectations and the
supply/demand lines. The amount that prices retreat following a higher-high can
q Periodicity be measured using a technique referred to as "percent retracement." This
q The time element measures the percentage that prices "retraced" from the high to the low.
q Conclusion
For example, if a stock moves from a low of 50 to a high of 100 and then retraces
q Order the Book to 75, the move from 100 to 75 (25 points) retraced 50% of the original move
q Learn more about from 50 to 100.
Technical Analysis

Accumulation/Distribution Measuring the percent retracement can be helpful when determining the price
Accumulation Swing Index levels at which prices will reverse and continue upward. During a vigorous bull
Advance/Decline Line market, prices often retrace up to 33% of the original move. It is not uncommon
Advance/Decline Ratio for prices to retrace up to 50%. Retracements of more than 66% almost always
Advancing-Declining Issues signify an end to the bull market.
Unchanged Volume Some investors feel that the similarities between 33%, 50%, and 66% and the
Andrews' Pitchfork
Fibonacci numbers of 38.2%, 50%, and 61.8% are significant. These investors
Arms Index
Average True Range
will use Fibonacci Levels to view retracement levels.
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
Example
CANSLIM
Chaikin Oscillator I labeled the following chart of Great Western at three points (labeled "A," "B,"
Commodity Channel Index and "C").
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
Linear Regression Lines These points define the price before the price move ("A"), at the end of the price
MACD move ("B"), and at the retraced price ("C"). In this example, prices have retraced
Mass Index 61.5% of the original price move.
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
PERFORMANCE
q Moving averages
q Indicators
Overview
q Market indicators The Performance indicator displays a security's price performance as a
q Line studies
percentage. This is sometimes called a "normalized" chart.
q Periodicity
q The time element
q Conclusion
Interpretation
q Order the Book The Performance indicator displays the percentage that the security has
q Learn more about
increased since the first period displayed. For example, if the Performance
Technical Analysis indicator is 10, it means that the security's price has increased 10% since the first
period displayed on the left side of the chart. Similarly, a value of -10% means
that the security's price has fallen by 10% since the first period displayed.
Reference
Absolute Breadth Index Performance charts are helpful for comparing the price movements of different
Accumulation/Distribution securities.
Advancing-Declining Issues Example
Unchanged Volume The following chart shows United Airlines and its Performance indicator. The
Andrews' Pitchfork indicator shows that United's price has increased 16% since the beginning of
Arms Index 1993.
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Herrick Payoff Index Calculation
Interest Rates
Kagi The Performance indicator is calculated by dividing the change in prices by the
Large Block Ratio first price displayed.
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/performance.html [5/11/2001 3:20:01 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
POINT AND FIGURE
q Moving averages
q Indicators
Overview
q Market indicators Point & Figure ("P&F") charts differ from traditional price charts in that they
q Line studies
completely disregard the passage of time and only display changes in prices.
Rather than having price on the y-axis and time on the x-axis, P&F charts display
q Periodicity price changes on both axes. This is similar toKagi, Renko, and Three Line Break
q The time element charts.
q Conclusion
q Learn more about
Technical Analysis Point & Figure charts display the underlying supply and demand of prices. A
column of Xs shows that demand is exceeding supply (a rally); a column of Os
shows that supply is exceeding demand (a decline); and a series of short
Reference columns shows that supply and demand are relatively equal.
Accumulation/Distribution There are several chart patterns that regularly appear in P&F charts. These
Accumulation Swing Index include Double Tops and Bottoms, Bullish and Bearish Signal formations, Bullish
and Bearish Symmetrical Triangles, Triple Tops and Bottoms, etc. It is beyond
the scope of this book to fully explain all of these patterns.
Unchanged Volume
Andrews' Pitchfork
Example
Arms Index The following two charts both show the prices of Atlantic Richfield. The first chart
Average True Range
displays prices in P&F, the second chart displays prices as high, low, close bars.
Bollinger Bands
Breadth Thrust
As I mentioned above, P&F charts focus only on price action. Looking at this P&F
Bull/Bear Ratio
chart, you can see that prices were initially contained between a support level at
CANSLIM
114 and a resistance level at 121. When prices broke above the resistance level
Chaikin Oscillator at 121 (the long column of Xs), that level became the new support level. This new
Commodity Channel Index support level eventually failed (the long column of Os), prices re-tested the
Commodity Selection Index support at 114, made a small rally, and then fell below the 114 support level.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
McClellan Oscillator This next chart shows the same pricing information as the preceding P&F chart.
McClellan Summation Index You can see that the support and resistance levels are also identifiable in this bar
Median Price chart, but the P&F chart made it much easier to identify them.
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator Calculation
Public Short Ratio Point & Figure charts display an "X" when prices rise by the "box size" (a value
Puts/Calls Ratio you specify) and display an "O" when prices fall by the box size. Note that no Xs
Quadrant Lines
or Os are drawn if prices rise or fall by an amount that is less than the box size.
Relative Strength,
Comparative
Each column can contain either Xs or Os, but never both. In order to change
Renko
columns (e.g., from an X column to an O column), prices must reverse by the
"reversal amount" (another value you specify) multiplied by the box size. For
Spreads example, if the box size is three points and the reversal amount is two boxes,
Standard Deviation then prices must reverse direction six points (three multiplied by two) in order to
STIX change columns. If you are in a column of Xs, the price must fall six points to
Stochastic Oscillator change to a column of Os. If you are in a column of Os, the price must rise six
Swing Index points to change to a column of Xs.
Three Line Break
Time Series Forecast The changing of columns identifies a change in the trend of prices. When a new
Tirone Levels column of Xs appears, it shows that prices are rallying higher. When a new
Total Short Ratio column of Os appears, it shows that prices are moving lower.
Trade Volume Index
Trendlines Because prices must reverse direction by the reversal amount, the minimum
TRIX number of Xs or Os that can appear in a column is equal to the "reversal
Typical Price amount."
Ultimate Oscillator
Upside/Downside Ratio The common practice is to use the high and low prices (not just the close) to
decide if prices have changed enough to display a new box.
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
POSITIVE VOLUME INDEX
q Moving averages
q Indicators
Overview
q Market indicators The Positive Volume Index ("PVI") focuses on days where the volume increased
q Line studies
from the previous day. The premise being that the "crowd" takes positions on
days when volume increases.
q Periodicity
q The time element
q Order the Book
q Learn more about
Interpretation of the PVI assumes that on days when volume increases, the
Technical Analysis crowd-following "uninformed" investors are in the market. Conversely, on days
with decreased volume, the "smart money" is quietly taking positions. Thus, the
PVI displays what the not-so-smart-money is doing. (The Negative Volume Index,
Reference displays what the smart money is doing.) Note, however, that the PVI is not a
Absolute Breadth Index contrarian indicator. Even though the PVI is supposed to show what the
Accumulation/Distribution not-so-smart-money is doing, it still trends in the same direction as prices.
Advance/Decline Line The following table summarizes NVI and PVI data from 1941 through 1975 as
explained in Stock Market Logic, by Norman Fosback.
Unchanged Volume Table 11
Andrews' Pitchfork
Arms Index
Average True Range
Indicator
Bollinger Bands Relative to Probability that Probability that
Breadth Thrust
Bull/Bear Ratio Indicator One-Year Bull market Bear market
CANSLIM
Moving is in Progress is in Progress
Chaikin Oscillator Average
Commodity Selection Index NVI Above 96% 4%
Cumulative Volume Index PVI Above 79% 21%
Cycles
Demand Index NVI Below 47% 53%
Directional Movement PVI Below 33% 67%
Dow Theory
Ease of Movement As you can see, NVI is excellent at identifying bull markets (i.e., when the NVI is
above its one-year moving average) and the PVI is pretty good at identifying bull
Elliott Wave Theory
markets (when the PVI is above its moving average) and bear markets (i.e., when
Equivolume
the PVI is below its moving average).
Fibonacci Studies
Four Percent Model
Fourier Transform
Example
Gann Angles
The following chart shows the NVI, the PVI, and the Dow Jones Industrial
Interest Rates Average ("DJIA") over a four year period (weekly data).
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
I labeled both the NVI and PVI indicators bullish or bearish depending on if they
Patterns were above or below their 52-week moving averages.
Percent Retracement
Performance I then labeled the DJIA as Bullish when either the NVI or PVI was above its
Point & Figure moving average, and as Very Bullish when both the indicators were above their
Positive Volume Index moving averages.
Price Oscillator
Public Short Ratio Calculation
Puts/Calls Ratio
Quadrant Lines If today's volume is greater than yesterday's volume then:
Relative Strength,
Comparative
Renko
Spreads If today's volume is less than or equal to yesterday's volume then:
Standard Deviation
STIX
Swing Index
Three Line Break Because rising prices are usually associated with rising volume, the PVI usually
Time Series Forecast trends upward.
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
PRICE AND VOLUME TREND
q Moving averages
q Indicators
Overview
q Market indicators The Price and Volume Trend ("PVT") is similar to On Balance Volume ("OBV,") in
q Line studies that it is a cumulative total of volume that is adjusted depending on changes in
closing prices. But where OBV adds all volume on days when prices close higher
q Periodicity
and subtracts all volume on days when prices close lower, the PVT
q The time element adds/subtracts only a portion of the daily volume. The amount of volume added to
q Conclusion the PVT is determined by the amount that prices rose or fell relative to the
q Order the Book
previous day's close.
q Learn more about
Technical Analysis
Interpretation
Reference The interpretation of the Price and Volume Trend is similar to the interpretation of
Absolute Breadth Index On Balance Volume and the Volume Accumulation/Distribution Line.
Many investors feel that the PVT more accurately illustrates the flow of money
into and out of a security than does OBV. This is because OBV adds the same
amount of volume to the indicator regardless of whether the security closes up a
Advancing, Declining, fraction of a point or doubles in price. Whereas, the PVT adds only a small
Unchanged Volume portion of volume to the indicator when the price changes by a small percentage
Andrews' Pitchfork and adds a large portion of volume to the indicator when the price changes by a
Arms Index large percentage.
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio Example
CANSLIM The following chart shows Dupont and the PVT.
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio The bullish divergence (the PVT was trending higher while prices trended lower)
Linear Regression Lines was followed by a strong price increase.
MACD
Mass Index
McClellan Summation Index Calculation
Median Price
Member Short Ratio The PVT is calculated by multiplying the day's volume by the percent that the
Momentum security's price changed, and adding this value to a cumulative total.
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
New Highs/Lows Ratio For example, if the security's price increased 0.5% on volume of 10,000 shares,
Odd Lot Balance Index we would add 50 (i.e., 0.005 * 10,000) to the PVT. If the security's price had
Odd Lot Purchases/Sales closed down 0.5%, we would have subtracted 50 from the PVT.
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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TA Training

Contents
Preface
Acknowledgments
Terminology
To Learn More
Introduction

q Price fields
q Charts
q Support & resistance
q Trends
q Moving averages
q Indicators
q Market indicators
q Line studies
q Periodicity
q The time element
q Conclusion
q Order the Book
q Learn more about
Technical Analysis

Reference
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author

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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
PRICE RATE-OF-CHANGE
q Moving averages
q Indicators
Overview
q Market indicators The Price Rate-of-Change ("ROC") indicator displays the difference between the
q Line studies
current price and the price x-time periods ago. The difference can be displayed in
either points or as a percentage. The Momentum indicator displays the same
q Periodicity
information, but expresses it as a ratio.
q The time element
q Conclusion
q Learn more about
Technical Analysis It is a well recognized phenomenon that security prices surge ahead and retract
in a cyclical wave-like motion. This cyclical action is the result of the changing
expectations as bulls and bears struggle to control prices.
Reference
Absolute Breadth Index The ROC displays the wave-like motion in an oscillator format by measuring the
Accumulation/Distribution amount that prices have changed over a given time period. As prices increase,
Accumulation Swing Index the ROC rises; as prices fall, the ROC falls. The greater the change in prices, the
Advance/Decline Line greater the change in the ROC.
Advancing-Declining Issues The time period used to calculate the ROC may range from 1-day (which results
in a volatile chart showing the daily price change) to 200-days (or longer). The
Unchanged Volume
Andrews' Pitchfork
most popular time periods are the 12- and 25-day ROC for short to
Arms Index
intermediate-term trading. These time periods were popularized by Gerald Appel
Average True Range and Fred Hitschler in their book, Stock Market Trading Systems.
Bollinger Bands
Breadth Thrust The 12-day ROC is an excellent short- to intermediate-term overbought/oversold
Bull/Bear Ratio indicator. The higher the ROC, the more overbought the security; the lower the
Candlesticks, Japanese ROC, the more likely a rally. However, as with all overbought/over-sold
CANSLIM indicators, it is prudent to wait for the market to begin to correct (i.e., turn up or
Chaikin Oscillator down) before placing your trade. A market that appears overbought may remain
Commodity Channel Index overbought for some time. In fact, extremely overbought/oversold readings
Commodity Selection Index usually imply a continuation of the current trend.
Cumulative Volume Index The 12-day ROC tends to be very cyclical, oscillating back and forth in a fairly
Cycles
regular cycle. Often, price changes can be anticipated by studying the previous
Demand Index
cycles of the ROC and relating the previous cycles to the current market.
Dow Theory
Ease of Movement
Example
Elliott Wave Theory
The following chart shows the 12-day ROC of Walgreen expressed in percent.
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows I drew "buy" arrows each time the ROC fell below, and then rose above, the
New Highs/Lows Ratio oversold level of -6.5. I drew "sell" arrows each time the ROC rose above, and
Odd Lot Balance Index then fell below, the overbought level of +6.5.
Odd Lot Short Ratio The optimum overbought/oversold levels (e.g., ±6.5) vary depending on the
On Balance Volume security being analyzed and overall market conditions. I selected ±6.5 by drawing
Open Interest a horizontal line on the chart that isolated previous "extreme" levels of
Open-10 TRIN Walgreen's 12-day ROC.
Option Analysis
Overbought/Oversold
Parabolic SAR
Percent Retracement
Performance When the Rate-of-Change displays the price change in points, it subtracts the
Point & Figure price x-time periods ago from today's price:
Price Oscillator
Public Short Ratio When the Rate-of-Change displays the price change as a percentage, it divides
Puts/Calls Ratio the price change by price x-time period's ago:
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
PUBLIC SHORT RATIO
q Moving averages
q Indicators
Overview
q Market indicators The Public Short Ratio ("PSR") shows the relationship between the number of
q Line studies
public short sales and the total number of short sales. (The Public Short Ratio is
sometimes referred to as the non-member short ratio.)
q Periodicity
q The time element
q Order the Book
q Learn more about
The interpretation of the PSR assumes one premise: that of the short sellers, the
Technical Analysis public is the worst (well, except for the odd lot traders whose indicators begin with
the Odd Lot Balance Index). If this is true, then we should buy when the public is
shorting and sell when the public is long. Historically, this premise has held true.
Reference
Absolute Breadth Index Generally speaking, the higher the PSR, the more bearish the public, and the
Accumulation/Distribution more likely prices will increase (given the above premise). Historically, it has
Accumulation Swing Index been considered bullish when the 10-week moving average of the PSR is above
Advance/Decline Line 25% and bearish when the moving average is below 25%. The further the moving
average is in the bullish or bearish territory, the more likely it is that a correction/
rally will take place. Also, the longer the indicator is in the bullish/bearish territory,
Unchanged Volume
the better the chances of a market move. For more information on the PSR, I
Andrews' Pitchfork suggest reading the discussion on the non-member short ratio in Stock Market
Arms Index Logic, by Norman G. Fosback.
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio Example
CANSLIM The following chart shows the New York Stock Exchange Index and a 10-week
Chaikin Oscillator moving average of the Public Short Ratio.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD The PSR dropped below 25% into bearish territory at the point labeled "A." Over
Mass Index the next several months, the PSR continued to move lower as the public became
McClellan Oscillator more and more bullish. During this period, prices surged upward adding to the
McClellan Summation Index bullish frenzy. The subsequent crash of 1987 gave the public a strong dose of
Median Price reality.
Member Short Ratio
Momentum Since the crash of 1987, the PSR has remained high, telling us that the public
Money Flow Index
doesn't expect higher prices--a bullish sign.
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Calculation
The Public Short Ratio is calculated by dividing the number of public short sales
by the total number of short sales. The result is the percent-age of public shorts.
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
PUTS/CALLS RATIO
q Moving averages
q Indicators
Overview
q Market indicators Developed by Martin Zweig, the Puts/Calls Ratio ("P/C Ratio") is a market
q Line studies
sentiment indicator that shows the relationship between the number of Puts to
Calls traded on the Chicago Board Options Exchange (CBOE).
q Periodicity
q The time element Traditionally, options are traded by unsophisticated, impatient investors who are
q Conclusion
lured by the potential for huge profits with a small capital outlay. Interestingly, the
actions of these investors provide excellent signals for market tops and bottoms.
q Order the Book
q Learn more about
Technical Analysis
Interpretation
Reference A Call gives an investor the right to purchase 100 shares of stock at a
Absolute Breadth Index pre-determined price. Investors who purchase Calls expect stock prices to rise in
Accumulation/Distribution the coming months. Conversely, a Put gives an investor the right to sell 100
Accumulation Swing Index shares of stock at a pre-set price. Investors purchasing Puts expect stock prices
Advance/Decline Line to decline. (An exception to these general rules is that Puts and Calls can also be
Advance/Decline Ratio purchased to hedge other investments, even other options.)
Advancing, Declining, Because investors who purchase Calls expect the market to rise and investors
Unchanged Volume who purchase Puts expect the market to decline, the relationship between the
Andrews' Pitchfork
number of Puts to Calls illustrates the bullish/bearish expectations of these
Arms Index
Average True Range
traditionally ineffective investors.
Bollinger Bands
Breadth Thrust
The higher the level of the P/C Ratio, the more bearish these investors are on the
Bull/Bear Ratio
market. Conversely, lower readings indicate high Call volume and thus bullish
Candlesticks, Japanese expectations.
CANSLIM
Chaikin Oscillator The P/C Ratio is a contrarian indicator. When it reaches "excessive" levels, the
Commodity Channel Index market usually corrects by moving the opposite direction. The following table,
Commodity Selection Index general guidelines for interpreting the P/C Ratio. However, the market does not
Correlation Analysis have to correct itself just because investors are excessive in their bullish/bearish
Cumulative Volume Index beliefs! As with all technical analysis tools, you should use the P/C Ratio in
Cycles conjunction with other market indicators.
Demand Index
Table 12
Dow Theory
Ease of Movement
P/C Ratio 10-day P/C Ratio 4-week
Moving Average Moving Average
Elliott Wave Theory
Excessively Bearish (buy) greater than 80 greater than 70
Equivolume
Excessively Bullish (sell) less than 45 less than 40
Fibonacci Studies
Four Percent Model
Fourier Transform
Fundamental Analysis Example
Gann Angles
Herrick Payoff Index The following chart shows the S&P 500 and a 4-week moving average of the
Interest Rates Puts/Calls Ratio.
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
I drew "buy" arrows when investors were excessively pessimistic (greater than
Patterns
Percent Retracement
70) and "sell" arrows when they were excessively optimistic (less than 40). The
Performance
arrows certainly show that investors are buying Puts when they should be buying
Point & Figure Calls, and vice versa.
Price Oscillator
Price Rate-of-Change Calculation
Public Short Ratio
Puts/Calls Ratio The Puts/Calls Ratio is calculated by dividing the volume of Puts by the volume of
Quadrant Lines Calls.
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
QUADRANT LINES
q Moving averages
q Indicators
Overview
q Market indicators Quadrant Lines are a series of horizontal lines that divide the highest and lowest
q Line studies
values (usually prices) into four equal sections.
q Periodicity
q The time element
q Conclusion
Interpretation
q Order the Book Quadrant Lines are primarily intended to aid in the visual inspection of price
q Learn more about
movements. They help you see the highest, lowest, and average price during a
Technical Analysis specified period.

Reference
Accumulation Swing Index An interesting technique is to display a Linear Regression trendline and Quadrant
Advance/Decline Line Lines. This combination displays the highest, lowest, and average price, as well
Advance/Decline Ratio as the average slope of the prices. I used this technique on the following chart of
Advancing-Declining Issues Black & Decker.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model Calculation
Fourier Transform
Fundamental Analysis Quadrant Lines are calculated by finding the highest-high and the lowest-low
Gann Angles during the time period being analyzed. The top line is drawn at the highest price
Herrick Payoff Index during the time period and the bottom line is drawn at the lowest price during the
Interest Rates time period. The remaining three lines are then drawn so they divide the section
Kagi between the highest-high and the lowest-low into four equal sections. The center
Large Block Ratio
line (the "mean") is usually displayed as a dotted line.
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
RELATIVE STRENGTH,
q Moving averages COMPARATIVE
q Indicators
q Line studies
Comparative Relative Strength compares two securities to show how the
q Periodicity
securities are performing relative to each other. Be careful not to confuse
q The time element Comparative Relative Strength with the Relative Strength Index.
q Conclusion
q Order the Book
Technical Analysis
Comparative Relative Strength compares a security's price change with that of a
"base" security. When the Comparative Relative Strength indicator is moving up,
Reference it shows that the security is performing better than the base security. When the
Absolute Breadth Index indicator is moving sideways, it shows that both securities are performing the
same (i.e., rising and falling by the same percentages). When the indicator is
moving down, it shows that the security is performing worse than the base
security (i.e., not rising as fast or falling faster).
Comparative Relative Strength is often used to compare a security's performance
Unchanged Volume with a market index. It is also useful in developing spreads (i.e., buy the best
Andrews' Pitchfork performer and short the weaker issue).
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust Example
Bull/Bear Ratio
Candlesticks, Japanese In the following charts, the top chart displays both Microsoft and IBM's prices.
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi The bottom chart shows the Comparative Relative Strength of IBM compared to
Large Block Ratio Microsoft.
MACD The Comparative Relative Strength indicator shows that IBM's price
Mass Index outperformed Microsoft's price during the last three months of 1993. It also shows
McClellan Oscillator that IBM's price then underperformed Microsoft's price during the first three
months of 1994. (I drew the trendlines on the Comparative Relative Strength
Median Price
Member Short Ratio
indicator using the linear regression technique.)
Momentum
Money Flow Index
Moving Averages
Calculation
New Highs-Lows
Cumulative The Comparative Relative Strength indicator is calculated by dividing one
New Highs-New Lows security's price by a second security's price (the "base" security). The result of
New Highs/Lows Ratio this division is the ratio, or relationship, between the two securities.
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/relastrcomp.html [5/11/2001 3:20:47 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
RELATIVE STRENGTH INDEX
q Moving averages
q Indicators
Overview
q Market indicators The Relative Strength Index ("RSI") is a popular oscillator. It was first introduced
q Line studies
by Welles Wilder in an article in Commodities (now known as Futures) Magazine
in June, 1978. Step-by-step instructions on calculating and interpreting the RSI
q Periodicity are also provided in Mr. Wilder's book, New Concepts in Technical Trading
q The time element Systems.
q Conclusion
q Order the Book
The name "Relative Strength Index" is slightly misleading as the RSI does not
compare the relative strength of two securities, but rather the internal strength of
q Learn more about a single security. A more appropriate name might be "Internal Strength Index."
Technical Analysis Relative strength charts that compare two market indices, which are often
referred to as Comparative Relative Strength.
Reference
Interpretation
Advance/Decline Ratio When Wilder introduced the RSI, he recommended using a 14-day RSI. Since
Advancing-Declining Issues then, the 9-day and 25-day RSIs have also gained popularity. Because you can
Advancing, Declining, vary the number of time periods in the RSI calculation, I suggest that you
Unchanged Volume experiment to find the period that works best for you. (The fewer days used to
Andrews' Pitchfork calculate the RSI, the more volatile the indicator.)
Arms Index
Average True Range The RSI is a price-following oscillator that ranges between 0 and 100. A popular
Bollinger Bands method of analyzing the RSI is to look for a divergence in which the security is
Breadth Thrust making a new high, but the RSI is failing to surpass its previous high. This
Bull/Bear Ratio
divergence is an indication of an impending reversal. When the RSI then turns
CANSLIM
down and falls below its most recent trough, it is said to have completed a "failure
Chaikin Oscillator
swing." The failure swing is considered a confirmation of the impending reversal.
In Mr. Wilder's book, he discusses five uses of the RSI in analyzing commodity
Correlation Analysis charts. These methods can be applied to other security types as well.
Cycles
Demand Index
q Tops and Bottoms.
Detrended Price Oscillator The RSI usually tops above 70 and bottoms below 30. It usually forms
Directional Movement these tops and bottoms before the underlying price chart.
Dow Theory
Ease of Movement
Efficient Market Theory q Chart Formations.
Elliott Wave Theory
The RSI often forms chart patterns such as head and shoulders (page
Equivolume
215) or triangles (page 216) that may or may not be visible on the price
Fibonacci Studies
chart.
Four Percent Model
Fourier Transform
q Failure Swings
Gann Angles (also known as support or resistance penetrations or breakouts). This is
Herrick Payoff Index where the RSI surpasses a previous high (peak) or falls below a recent
Interest Rates low (trough).
Kagi
Large Block Ratio
Linear Regression Lines q Support and Resistance.
MACD
The RSI shows, sometimes more clearly than price themselves, levels of
Mass Index
support and resistance.
Median Price
Member Short Ratio
q Divergences.
Momentum As discussed above, divergences occur when the price makes a new high
Money Flow Index (or low) that is not confirmed by a new high (or low) in the RSI. Prices
Moving Averages usually correct and move in the direction of the RSI.
New Highs-Lows For additional information on the RSI, refer to Mr. Wilder's book.
Cumulative
New Highs-New Lows
Odd Lot Balance Index Example
Odd Lot Short Ratio The following chart shows PepsiCo and its 14-day RSI.
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX A bullish divergence occurred during May and June as prices were falling while
Stochastic Oscillator the RSI was rising. Prices subsequently corrected and trended upward.
Swing Index
Three Line Break
Tirone Levels Calculation
Total Short Ratio
Trade Volume Index The RSI is a fairly simple formula, but is difficult to explain without pages of
Trendlines examples. Refer to Wilder's book for additional calculation information. The basic
TRIX formula is:
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close Where:
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
RENKO
q Moving averages
q Indicators
Overview
q Market indicators The Renko charting method is thought to have acquired its name from "renga"
q Line studies
which is the Japanese word for bricks. Renko charts are similar to Three Line
Break charts except that in a Renko chart, a line (or "brick" as they're called) is
q Periodicity
drawn in the direction of the prior move only if prices move by a minimum amount
q The time element (i.e., the box size). The bricks are always equal in size. For example, in a 5-unit
q Conclusion Renko chart, a 20-point rally is displayed as four, 5-unit tall Renko bricks.
q Order the Book Kagi charts were first brought to the United States by Steven Nison when he
q Learn more about published the book, Beyond Candlesticks.
Technical Analysis

Reference
Interpretation
Basic trend reversals are signaled with the emergence of a new white or black
Accumulation Swing Index brick. A new white brick indicates the beginning of a new up-trend. A new black
Advance/Decline Line brick indicates the beginning of a new down-trend. Since the Renko chart is a
Advance/Decline Ratio trend following technique, there are times when Renko charts produce whipsaws,
Advancing-Declining Issues giving signals near the end of short-lived trends. However, the expectation with a
Advancing, Declining, trend following technique is that it allows you to ride the major portion of
Unchanged Volume significant trends.
Andrews' Pitchfork
Arms Index Since a Renko chart isolates the underlying price trend by filtering out the minor
Average True Range price changes, Renko charts can also be very helpful when determining support
Bollinger Bands and resistance levels.
Breadth Thrust
Bull/Bear Ratio
CANSLIM Example
Chaikin Oscillator
Commodity Channel Index The following charts show Intel as a classic high-low-close bar chart and as a
Commodity Selection Index 2.5-unit Renko chart.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
McClellan Oscillator I drew "buy" and "sell" arrows on both charts when trend reversals occurred in
McClellan Summation Index the Renko chart. You can see that although the signals were late, they did ensure
Median Price that you invested with the major trend.
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
Calculation
New Highs-Lows
Renko charts are always based on closing prices. You specify a "box size" which
Cumulative
New Highs-New Lows
determines the minimum price change to display.
To draw Renko bricks, today's close is compared with the high and low of the
previous brick (white or black):
Odd Lot Short Ratio
On Balance Volume
q If the closing price rises above the top of the previous brick by at least the
Open Interest box size, one or more white bricks are drawn in new columns. The height
Open-10 TRIN of the bricks is always equal to the box size.
Option Analysis
Overbought/Oversold q If the closing price falls below the bottom of the previous brick by at least
Parabolic SAR the box size, one or more black bricks are drawn in new columns. Again,
Patterns the height of the bricks is always equal to the box size.
Percent Retracement
Performance If prices move more than the box size, but not enough to create two bricks, only
Point & Figure one brick is drawn. For example, in a two-unit Renko chart, if the prices move
Positive Volume Index from 100 to 103, only one white brick is drawn from 100 to 102. The rest of the
Price and Volume Trend move, from 102 to 103, is not shown on the Renko chart.
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
SPEED RESISTANCE LINES
q Moving averages
q Indicators
Overview
q Market indicators Speed Resistance Lines ("SRL"), sometimes called 1/3-2/3 lines, are a series of
q Line studies
trendlines that divide a price move into three equal sections. They are similar in
construction and interpretation to Fibonacci Fan Lines.
q Periodicity
q The time element
Conclusion
q
Interpretation
q Order the Book
q Learn more about Speed Resistance Lines display three trendlines. The slope of each line defines a
Technical Analysis different rate at which pricing expectations are changing.

Prices should find support above the 2/3 line. When prices do fall below the 2/3
Reference line, they should quickly drop to the 1/3 line where they should then again find
Absolute Breadth Index support.
Advance/Decline Ratio Example
The following charts show McDonald's price and Speed Resistance Lines.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows The initial trendline was drawn from the low point labeled "A" to the high point
New Highs/Lows Ratio labeled "B." You can see that prices found support each time they fell to the 2/3
line. When prices finally penetrated the 2/3 line (at point "C") they quickly fell to
Odd Lot Short Ratio
the 1/3 line where they again found support.
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Calculation
Overbought/Oversold
Parabolic SAR
Patterns
To draw Speed Resistance Lines:
Percent Retracement 1. Draw a line from a major low to a major high.
Performance
Point & Figure 2. Draw a vertical line on the day the major high occurred. Divide this vertical
line into thirds.
Price Oscillator
3. Draw lines from the major low so they intersect the vertical line at the 1/3
Public Short Ratio
and 2/3 levels.
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
SPREADS
q Moving averages
q Indicators
Overview
q Market indicators Spreads show the difference in price between two securities. Spreads are
q Line studies
normally calculated using options.
q Periodicity
q The time element
q Conclusion
Interpretation
q Order the Book A spread involves buying one security and selling another with the goal of
q Learn more about
profiting from the narrowing or expanding of the difference between the two
Technical Analysis securities. For example, you might buy gold and short silver with the expectation
that the price of gold will rise faster (or fall more slowly) than the price of silver.

Reference You can also spread a single security by buying one contract and selling another.
Absolute Breadth Index For example, buy an October contract and sell a December contract.
Advancing, Declining, The following charts show Live Hogs (top chart), Pork Bellies (middle chart), and
Unchanged Volume the spread between the Hogs and Bellies (bottom chart).
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies This spread involves buying the Hogs and shorting the Bellies with the
Four Percent Model
anticipation that Hogs will rise faster (or fall more slowly) than Bellies. You can
Fourier Transform
see that during the time period shown, both Hogs and Bellies decreased in price.
Gann Angles
As desired, the price of Hogs fell less than the price of Bellies. This is shown by
Herrick Payoff Index the spread narrowing from -10.55 to -3.58, with a resulting profit of 6.97.
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
STANDARD DEVIATION
q Moving averages
q Indicators
Overview
q Market indicators Standard Deviation is a statistical measure of volatility. Standard Deviation is
q Line studies
typically used as a component of other indicators, rather than as a stand-alone
indicator. For example, Bollinger Bands are calculated by adding a security's
q Periodicity
Standard Deviation to a moving average.
q The time element
q Conclusion
q Learn more about
Technical Analysis High Standard Deviation values occur when the data item being analyzed (e.g.,
prices or an indicator) is changing dramatically. Similarly, low Standard Deviation
values occur when prices are stable.
Reference
Absolute Breadth Index Many analysts feel that major tops are accompanied with high volatility as
Accumulation/Distribution investors struggle with both euphoria and fear. Major bottoms are expected to be
Accumulation Swing Index calmer as investors have few expectations of profits.
Unchanged Volume
Andrews' Pitchfork The following chart shows Proctor & Gamble and its 10-week Standard Deviation.
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
The extremely low Standard Deviation values at points "A" and "B" preceded
Fundamental Analysis significant rallies at points 1 and "2."
Gann Angles
Interest Rates Calculation
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Where:
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows Standard Deviation is derived by calculating an n-period simple moving average
New Highs/Lows Ratio of the data item (i.e., the closing price or an indicator), summing the squares of
Odd Lot Balance Index the difference between the data item and its moving average over each of the
Odd Lot Purchases/Sales preceding n-time periods, dividing this sum by n, and then calculating the square
Odd Lot Short Ratio root of this result.
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
STIX
q Moving averages
q Indicators
Overview
q Market indicators STIX is a short-term trading oscillator that was published in The Polymetric
q Line studies
Report. It compares the amount of volume flowing into advancing and declining
stocks.
q Periodicity
q The time element
q Order the Book
q Learn more about
According to The Polymetric Report:
Technical Analysis
q STIX usually ranges between +42 and +58.

Reference q If STIX gets as low as 45, the market is almost always a buy, except in a
Absolute Breadth Index raging bear market.
Accumulation Swing Index q The market is fairly overbought if STIX rises to 56; and except in a new
Advance/Decline Line bull market, it's wise to sell if STIX should go over 58.
Advancing-Declining Issues q Traders and investors should modify these rough rules to suit their own
Advancing, Declining, objectives.
Unchanged Volume
Andrews' Pitchfork q In normal markets, STIX rarely gets as high as 56 or as low as 45, so rigid
Arms Index use of these rules of thumb would keep you inactive most of the time. For
Average True Range active accounts, the rules might be made much less stringent.
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
Table 13
CANSLIM
Extremely Overbought greater than 58
Chaikin Oscillator
Fairly Overbought greater than 56
Commodity Selection Index Fairly Oversold less than 45
Cumulative Volume Index Extremely Oversold less than 42
Cycles
Demand Index
Dow Theory Example
Ease of Movement
Efficient Market Theory The following chart shows the S&P 500 and the STIX indicator.
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
New Highs/Lows Ratio I drew "buy" arrows when the STIX fell below, and the rose above, the oversold
level of 45. I drew "sell" arrows when the STIX rose above, and then fell below,
Odd Lot Short Ratio
the overbought level of 56.
On Balance Volume
Open Interest
Open-10 TRIN Calculation
Option Analysis
Overbought/Oversold STIX is based on a variation of the Advance/Decline Ratio:
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price and Volume Trend The STIX is a 21-period (i.e., 9%) exponential moving average of the above A/D
Price Oscillator Ratio:
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
STOCHASTIC OSCILLATOR
q Moving averages
q Indicators
Overview
q Market indicators Sto.chas.tic (sto kas'tik) adj. 2. Math. designating a process having an infinite
q Line studies progression of jointly distributed random variables.
--- Webster's New World Dictionary
q Periodicity
q The time element The Stochastic Oscillator compares where a security's price closed relative to its
q Conclusion
price range over a given time period.
q Order the Book
q Learn more about
Technical Analysis
Interpretation
The Stochastic Oscillator is displayed as two lines. The main line is called "%K."
Reference The second line, called "%D," is a moving average of %K. The %K line is usually
Absolute Breadth Index displayed as a solid line and the %D line is usually displayed as a dotted line.
Accumulation Swing Index There are several ways to interpret a Stochastic Oscillator. Three popular
Advance/Decline Line methods include:
Advancing-Declining Issues 1. Buy when the Oscillator (either %K or %D) falls below a specific level
Advancing, Declining, (e.g., 20) and then rises above that level. Sell when the Oscillator rises
Unchanged Volume above a specific level (e.g., 80) and then falls below that level.
Andrews' Pitchfork
Arms Index 2. Buy when the %K line rises above the %D line and sell when the %K line
Average True Range falls below the %D line.
Bollinger Bands
Breadth Thrust 3. Look for divergences. For example, where prices are making a series of
Bull/Bear Ratio new highs and the Stochastic Oscillator is failing to surpass its previous
Candlesticks, Japanese highs.
CANSLIM
Chaikin Oscillator
Commodity Selection Index Example
Cumulative Volume Index The following chart shows Avon Products and its 10-day Stochastic.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price I drew "buy" arrows when the %K line fell below, and then rose above, the level
Member Short Ratio of 20. Similarly, I drew "sell" arrows when the %K line rose above, and then fell
Momentum below, the level of 80.
Money Flow Index
Moving Averages This next chart also shows Avon Products.
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio In this example I drew "buy" arrows each time the %K line rose above the %D
Quadrant Lines
(dotted). Similarly, "sell" arrows were drawn when the %K line fell below the %D
Relative Strength,
line.
Comparative
This final chart shows a divergence between the Stochastic Oscillator and prices.
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams' This is a classic divergence where prices are headed higher, but the underlying
Accumulation/Distribution indicator (the Stochastic Oscillator) is moving lower. When a divergence occurs
Williams' %R between an indicator and prices, the indicator typically provides the clue as to
Zig Zag where prices will head.
Bibliography
About the Author

Calculation
The Stochastic Oscillator has four variables:

1. %K Periods.
This is the number of time periods used in the stochastic calculation.

2. %K Slowing Periods.
This value controls the internal smoothing of %K. A value of 1 is
considered a fast stochastic; a value of 3 is considered a slow stochastic.

3. %D Periods.
This is the number of time periods used when calculating a moving
average of %K. The moving average is called "%D" and is usually
displayed as a dotted line on top of %K.

4. %D Method.
The method (i.e., Exponential, Simple, Time Series, Triangular, Variable,
or Weighted) that is used to calculate %D.

The formula for %K is:

For example, to calculate a 10-day %K, first find the security's highest-high and
lowest-low over the last 10 days. As an example, let's assume that during the last
10 days the highest-high was 46 and the lowest-low was 38--a range of 8 points.
If today's closing price was 41, %K would be calculated as:

The 37.5% in this example shows that today's close was at the level of 37.5%
relative to the security's trading range over the last 10 days. If today's close was
42, the Stochastic Oscillator would be 50%. This would mean that that the
security closed today at 50%, or the mid-point, of its 10-day trading range.

The above example used a %K Slowing Period of 1-day (no slowing). If you use
a value greater than one, you average the highest-high and the lowest-low over
the number of %K Slowing Periods before performing the division.

A moving average of %K is then calculated using the number of time periods
specified in the %D Periods. This moving average is called %D.

The Stochastic Oscillator always ranges between 0% and 100%. A reading of 0%
shows that the security's close was the lowest price that the security has traded
during the preceding x-time periods. A reading of 100% shows that the security's
close was the highest price that the security has traded during the preceding
x-time periods.



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
SWING INDEX
q Moving averages
q Indicators
Overview
q Market indicators Developed by Welles Wilder, the Swing Index seeks to isolate the "real" price of a
q Line studies
security by comparing the relationships between the current prices (i.e., open,
high, low, and close) and the previous period's prices.
q Periodicity
q The time element
q Order the Book
q Learn more about
The Swing Index is primarily used as a component of the Accumulation Swing
Technical Analysis Index.

Reference
Accumulation Swing Index The following chart shows the British Pound and the Swing Index.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
You can see that by itself, the Swing Index is an erratic plot. The value of this
Elliott Wave Theory
indicator develops when it is accumulated into the Accumulation Swing Index.
Equivolume
Fibonacci Studies Calculation
Four Percent Model
Fourier Transform Although it is beyond the scope of this book to completely define the Swing
Fundamental Analysis Index, the basic formula is shown below. Step-by-step instructions on calculating
Gann Angles
the Swing Index are provided in Wilder's book, New Concepts In Technical
Interest Rates Trading Systems.
Kagi
Large Block Ratio
MACD
Mass Index
McClellan Oscillator Where:
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
The following table lists the limit moves for several commodities. You can get a
Price Oscillator list of limit moves from your broker.
Public Short Ratio Table 14
Puts/Calls Ratio
Quadrant Lines Commodity Limit Move
Relative Strength,
Comparative Coffee $0.06
Renko Gold $75.00
Spreads Heating Oil $0.04
Standard Deviation
STIX Hogs $0.015
Swing Index Soybeans $0.30
Three Line Break
T-Bonds $3.00
Tirone Levels
Total Short Ratio You may need to adjust the limit moves shown in the above table based on the
Trade Volume Index position of the decimal in your data. For example, if the price of corn is quoted as
Trendlines $2.45, the limit move would be $0.10. However, if the price of corn is quoted as
TRIX $245.00, the limit move would be $10.00.
Typical Price
Ultimate Oscillator If the security does not have a limit move (e.g., a stock or some futures), use an
extremely high value (e.g., $30,000).
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Three Line Break - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
THREE LINE BREAK
q Moving averages
q Indicators
Overview
q Market indicators Three Line Break charts display a series of vertical boxes ("lines") that are based
q Line studies
on changes in prices. As with Kagi, Point & Figure, and Renko charts, Three Line
Break charts ignore the passage of time.
q Periodicity
q The time element The Three Line Break charting method is so-named because of the number of
q Conclusion lines typically used.
q Order the Book Three Line Break charts were first brought to the United States by Steven Nison
q Learn more about when he published the book, Beyond Candlesticks.
Technical Analysis

Accumulation Swing Index The following are the basic trading rules for a three-line
break chart:
Advancing-Declining Issues q Buy when a white line emerges after three adjacent black lines (a "white
Advancing, Declining, turnaround line").
Unchanged Volume
Andrews' Pitchfork q Sell when a black line appears after three adjacent white lines (a "black
Arms Index turnaround line").
Average True Range q Avoid trading in "trendless" markets where the lines alternate between
Bollinger Bands
black and white.
Breadth Thrust
Bull/Bear Ratio
An advantage of Three Line Break charts is that there is no arbitrary fixed
CANSLIM
reversal amount. It is the price action which gives the indication of a reversal. The
Chaikin Oscillator
disadvantage of Three Line Break charts is that the signals are generated after
Commodity Channel Index the new trend is well under way. However, many traders are willing to accept the
Commodity Selection Index late signals in exchange for calling major trends.
Cumulative Volume Index You can adjust the sensitivity of the reversal criteria by changing the number of
Cycles lines in the break. For example, short-term traders might use two-line breaks to
Demand Index get more reversals while a longer-term investor might use four-line or even
Detrended Price Oscillator 10-line breaks to reduce the number of reversals. The Three Line Break is the
Directional Movement most popular in Japan.
Dow Theory
Ease of Movement Steven Nison recommends using Three Line Break charts in conjunction with
Efficient Market Theory candlestick charts. He suggests using the Three Line Break chart to determine
Elliott Wave Theory
the prevailing trend and then using candlestick patterns to time your individual
Equivolume
trades.
Fibonacci Studies
Four Percent Model
Fourier Transform
Example
Gann Angles
The following illustration shows a Three Line Break and a bar chart of Apple
Interest Rates
Computer.
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN You can see that the number of break lines in a given month depend on the price
Option Analysis change during the month. For example, June has many lines because the prices
Overbought/Oversold changed significantly whereas November only has two lines because prices were
Parabolic SAR relatively flat.
Patterns
Percent Retracement
Performance
Point & Figure Calculation
Price and Volume Trend Line Break charts are always based on closing prices.
Price Oscillator
Public Short Ratio The general rules for calculating a Line Break chart are:
Puts/Calls Ratio
Quadrant Lines
q If the price exceeds the previous line's high price, a new white line is
Relative Strength,
drawn.
Comparative q If the price falls below the previous line's low price, a new black line is
Relative Strength Index drawn.
Renko
Speed Resistance Lines q If the price does not rise above nor fall below the previous line, nothing is
Spreads drawn.
Standard Deviation
STIX In a Three Line Break chart, if rallies are strong enough to display three
Stochastic Oscillator consecutive lines of the same color, then prices must reverse by the extreme
Swing Index price of the last three lines in order to create a new line:
Three Line Break
q If a rally is powerful enough to form three consecutive white lines, then
Tirone Levels
prices must fall below the lowest point of the last three white lines before a
Total Short Ratio
new black line is drawn.
Trade Volume Index q If a sell-off is powerful enough to form three consecutive black lines, then
Trendlines prices must rise above the highest point of the last three black lines before
TRIX a new white line is drawn.
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/3linebreak.html [5/11/2001 3:21:35 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
TIME SERIES FORECAST
q Moving averages
q Indicators
Overview
q Market indicators The Time Series Forecast indicator displays the statistical trend of a security's
q Line studies
price over a specified time period. The trend is based on linear regression
analysis. Rather than plotting a straight linear regression trendline, the Time
q Periodicity
Series Forecast plots the last point of multiple linear regression trendlines. The
q The time element resulting Time Series Forecast indicator is sometimes referred to as the "moving
q Conclusion linear regression" indicator or the "regression oscillator."
q Order the Book
q Learn more about
The interpretation of a Time Series Forecast is identical to a moving average.
Reference However, the Time Series Forecast indicator has two advantages over classic
Absolute Breadth Index moving averages.
Accumulation Swing Index Unlike a moving average, a Time Series Forecast does not exhibit as much delay
Advance/Decline Line when adjusting to price changes. Since the indicator is "fitting" itself to the data
rather than averaging them, the Time Series Forecast is more responsive to price
changes.
Unchanged Volume
Andrews' Pitchfork
As the name suggests, you can use the Time Series Forecast to forecast the next
Arms Index
period's price. This estimate is based on the trend of the security's prices over the
Average True Range period specified (e.g., 20 days). If the current trend continues, the value of the
Bollinger Bands Time Series Forecast is a forecast of the next period's price.
Breadth Thrust
Bull/Bear Ratio
CANSLIM Example
Chaikin Oscillator
Commodity Channel Index The following chart shows a 50-day Time Series Forecast of Microsoft's prices.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD I've also drawn three 50-day long linear regression trendlines. You can see that
Mass Index the ending point of each trendline is equal to the value of the Time Series
McClellan Oscillator Forecast.
Median Price
Member Short Ratio
Money Flow Index
Moving Averages The Time Series Forecast is determined by calculating a linear regression
Negative Volume Index trendline using the "least squares fit" method. The least squares fit technique fits
New Highs-Lows a trendline to the data in the chart by minimizing the distance between the data
Cumulative points and the linear regression trendline. Click here to go to the formula for a
New Highs-New Lows linear regression trendline.
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
TIRONE LEVELS
q Moving averages
q Indicators
Overview
q Market indicators Tirone Levels are a series of horizontal lines that identify support and resistance
q Line studies
levels. They were developed by John Tirone.
q Periodicity
q The time element
q Conclusion
Interpretation
q Order the Book Tirone Levels can be drawn using either the Midpoint 1/3-2/3 method or the Mean
q Learn more about
method. Both methods are intended to help you identify potential support and
Technical Analysis resistance levels based on the range of prices over a given time period. The
interpretation of Tirone Levels is similar to Quadrant Lines.

Reference
Example
The following chart shows Midpoint Tirone Levels on Lincoln National.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Efficient Market Theory The dotted line shows the average price. The top and bottom lines divide the
Elliott Wave Theory range between the highest and lowest prices into thirds.
Equivolume
Fibonacci Studies
Four Percent Model
Calculation
Fourier Transform Midpoint Method
Gann Angles Midpoint levels are calculated by finding the highest high and the lowest low
Herrick Payoff Index during the time period being analyzed. The lines are then calculated as follows:
Interest Rates
Kagi q Top line:
Large Block Ratio
Linear Regression Lines Subtract the lowest low from the highest high, divide this value by three,
MACD and then subtract this result from the highest high.
Mass Index
McClellan Oscillator q Center Line:
McClellan Summation Index Subtract the lowest low from the highest high, divide this value by two, and
Median Price then add this result to the lowest low.
Member Short Ratio
Momentum q Bottom Line:
Money Flow Index
Moving Averages Subtract the lowest low from the highest high, divide this value by three,
Negative Volume Index and then add this result to the lowest low.
New Highs-Lows
Cumulative
New Highs-New Lows Mean Method
Odd Lot Balance Index Mean levels are displayed as five lines (the spacing between the lines is not
Odd Lot Purchases/Sales necessarily symmetrical). The lines are calculated as follows:
Odd Lot Short Ratio
On Balance Volume q Extreme High:
Open Interest Subtract the lowest low from the highest high and add this value to the
Open-10 TRIN
Adjusted Mean.
Option Analysis
Overbought/Oversold
q Regular High:
Parabolic SAR
Patterns Subtract the lowest low from the value of the Adjusted Mean multiplied by
Percent Retracement two.
Performance
Point & Figure q Adjusted Mean:
This is the sum of the highest high, the lowest low, and the most recent
Price Oscillator
closing price, divided by three.
Public Short Ratio
q Regular Low:
Puts/Calls Ratio Subtract the highest high from the value of the Adjusted Mean multiplied
Quadrant Lines by two.
Relative Strength,
Comparative q Extreme Low:
Renko Subtract the lowest low from the highest high and then subtract this value
Speed Resistance Lines from the Adjusted Mean.
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
TOTAL SHORT RATIO
q Moving averages
q Indicators
Overview
q Market indicators The Total Short Ratio ("TSR") shows the percentage of short sales to the total
q Line studies
volume on the New York Stock Exchange.
q Periodicity
q The time element
q Conclusion
Interpretation
q Order the Book As with the Public Short Ratio, the Total Short Ratio takes the contrarian view
q Learn more about
that short sellers are usually wrong. While the odd lotters are typically the worst
Technical Analysis of the short sellers, history has shown that even the specialists tend to over-short
at market bottoms.

Reference The TSR shows investor expectations. High values indicate bearish expectations
Absolute Breadth Index and low values indicate bullish expectations. Taking a contrarian stance, when
Accumulation/Distribution there are high levels of shorts (many investors expect a market decline), we
Accumulation Swing Index would expect the market to rise. Likewise, extremely low levels of short sales
Advance/Decline Line should indicate excessive optimism and the increased likelihood of a market
Advance/Decline Ratio decline.
Advancing, Declining, The interpretation of all of the short sale indicators has become more difficult
Unchanged Volume recently due to option hedging and arbitrage. However, they are still helpful in
Andrews' Pitchfork
determining overall market expectations.
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
Example
The following chart shows the New York Stock Exchange and a 10-week moving
CANSLIM
Chaikin Oscillator
average of the Total Short Ratio.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index I drew "buy" arrows each time investors were excessively bearish. In hindsight,
McClellan Oscillator each of these turned out to be excellent times to enter the market.
Median Price
Member Short Ratio
Money Flow Index
Moving Averages The Total Short Ratio is calculated by dividing the total number of short sales by
Negative Volume Index the total number of buy and sell orders. Both of these figures are reported weekly
New Highs-Lows (on Fridays) by the NYSE.
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
TRADE VOLUME INDEX
q Moving averages
q Indicators
Overview
q Market indicators The Trade Volume Index ("TVI") shows whether a security is being accumulated
q Line studies
(purchased) or distributed (sold).
q Periodicity The TVI is designed to be calculated using intraday "tick" price data. The TVI is
q The time element based on the premise that trades taking place at higher "asking" prices are buy
q Conclusion
transactions and trades at lower "bid" prices are sell transactions.
q Order the Book
Learn more about
q

Technical Analysis
Interpretation
The TVI is very similar to On Balance Volume. The OBV method works well with
Reference daily prices, but it doesn't work as well with intraday tick prices. Tick prices,
Absolute Breadth Index especially stock prices, often display trades at the bid or ask price for extended
Accumulation/Distribution periods without changing. This creates a flat support or resistance level in the
Accumulation Swing Index chart. During these periods of unchanging prices, the TVI continues to
Advance/Decline Line accumulate this volume on either the buy or sell side, depending on the last price
change.
The TVI helps identify whether a security is being accumulated or distributed.
Unchanged Volume
Andrews' Pitchfork
When the TVI is trending up, it shows that trades are taking place at the asking
Arms Index
price as buyers accumulate the security. When the TVI is trending down, it shows
Average True Range that trades are taking place at the bid price as sellers distribute the security.
Bollinger Bands
Breadth Thrust When prices create a flat resistance level and the TVI is rising, look for prices to
Bull/Bear Ratio breakout to the upside. When prices create a flat support level and the TVI is
Candlesticks, Japanese falling, look for prices to drop below the support level.
CANSLIM
Chaikin Oscillator
Cumulative Volume Index The following chart shows IBM's tick prices and TVI.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
During the 45 minutes leading up to the point labeled "A," prices were locked in a
Median Price
tight range between the bid price of 69 1/4 and the asking price of 69 3/8. During
Member Short Ratio this same period, the TVI was trending upward which showed the prices were
Momentum slowly being accumulated.
Money Flow Index
Moving Averages
New Highs-Lows
Calculation
Cumulative The Trade Volume Index is calculated by adding each trade's volume to a
New Highs-New Lows
cumulative total when the price moves up by a specified amount, and subtracting
the trade's volume when the price moves down by a specified amount. The
"specified" amount is called the "Minimum Tick Value."
Odd Lot Short Ratio
On Balance Volume
To calculate the TVI you must first determine if prices are being accumulated or
Open Interest distributed:
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX Once you know the direction, you can then calculate the TVI:
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
TRENDLINES
q Moving averages
q Indicators
Overview
q Market indicators One of the basic tenets put forth by Charles Dow in the Dow Theory is that
q Line studies
security prices do trend. Trends are often measured and identified by
"trendlines." A trendline is a sloping line that is drawn between two or more
q Periodicity prominent points on a chart. Rising trends are defined by a trendline that is drawn
q The time element between two or more troughs (low points) to identify price support. Falling trend-s
q Conclusion are defined by trendlines that are drawn between two or more peaks (high points)
to identify price resistance.
q Order the Book
q Learn more about
Technical Analysis
Interpretation
Reference A principle of technical analysis is that once a trend has been formed (two or
Absolute Breadth Index more peaks/troughs have touched the trendline and reversed direction) it will
Accumulation/Distribution remain intact until broken.
Advance/Decline Line That sounds much more simplistic than it is! The goal is to analyze the current
Advance/Decline Ratio trend using trendlines and then either invest with the current trend until the
Advancing-Declining Issues trendline is broken, or wait for the trendline to be broken and then invest with the
new (opposite) trend.
Unchanged Volume
Andrews' Pitchfork
One benefit of trendlines is they help distinguish emotional decisions ("I think it's
Arms Index
Average True Range
time to sell...") from analytical decisions ("I will hold until the current rising
Bollinger Bands
trendline is broken"). Another benefit of trendlines is that they almost always keep
Breadth Thrust you on the "right" side of the market. When using trendlines, it's difficult to hold a
Bull/Bear Ratio security for very long when prices are falling just as it's hard to be short when
Candlesticks, Japanese prices are rising--either way the trendline will be broken.
CANSLIM
Chaikin Oscillator
Cumulative Volume Index The following chart shows Goodyear along with several trendlines.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
McClellan Summation Index Trendlines "A" and "C" are falling trendlines. Note how they were drawn between
Median Price successive peaks. Trendlines "B" and "D" are rising trendlines. They were drawn
Member Short Ratio between successive troughs in the price.
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/trendlines.html [5/11/2001 3:22:02 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
TRIX
q Moving averages
q Indicators
Overview
q Market indicators TRIX is a momentum indicator that displays the percent rate-of-change of a triple
q Line studies
exponentially smoothed moving average of the security's closing price. It is
designed to keep you in trends equal to or shorter than the number of periods
q Periodicity you specify.
q The time element
q Conclusion
q Learn more about
Technical Analysis The TRIX indicator oscillates around a zero line. Its triple exponential smoothing
is designed to filter out "insignificant" cycles (i.e., those that are shorter than the
number of periods you specify).
Reference
Absolute Breadth Index Trades should be placed when the indicator changes direction (i.e., buy when it
Accumulation/Distribution turns up and sell when it turns down). You may want to plot a 9-period moving
Accumulation Swing Index average of the TRIX to create a "signal" line (similar to the MACD indicator, and
Advance/Decline Line then buy when the TRIX rises above its signal, and sell when it falls below its
signal.
Divergences between the security and the TRIX can also help identify turning
Unchanged Volume
Andrews' Pitchfork
points.
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Example
Bull/Bear Ratio
The following chart shows Checker Drive-In, its 12-day TRIX (solid line), and a
CANSLIM
9-day "signal" moving average of the TRIX (dotted line).
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio I drew "buy" arrows when the TRIX rose above its signal line and drew "sell"
Linear Regression Lines arrows when it fell below its signal line. This method worked well when prices
MACD were trending, but it generated numerous false signals when prices were moving
Mass Index sideways.
McClellan Summation Index A bearish divergence occurred when the TRIX was falling (trendline "A") while
Median Price prices rose. Prices subsequently corrected. Similarly, a bullish divergence
Member Short Ratio occurred when the TRIX was rising (trendline "B") while prices were falling.
Momentum
Prices subsequently rallied.
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
Calculation
New Highs-New Lows
New Highs/Lows Ratio To calculate the TRIX indicator:
Odd Lot Purchases/Sales 1. alculate an n-period exponential moving average of the closing prices.
Odd Lot Short Ratio
On Balance Volume 2. Calculate an n-period exponential moving average of the moving average
Open Interest calculated in Step #1.
Open-10 TRIN
Option Analysis 3. Calculate an n-period exponential moving average of the moving average
Overbought/Oversold
calculated in Step #2.
Parabolic SAR
Patterns
4. Calculate the 1-period (e.g., 1-day) percent change of the moving average
Percent Retracement
Performance
calculated in Step #3.
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/trix.html [5/11/2001 3:22:07 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
TYPICAL PRICE
q Moving averages
q Indicators
Overview
q Market indicators The Typical Price indicator is simply an average of each day's price. The Median
q Line studies Price and Weighted Close are similar indicators.
q Periodicity
q The time element
q Conclusion
Interpretation
q Order the Book The Typical Price indicator provides a simple, single-line plot of the day's average
q Learn more about price. Some investors use the Typical Price rather than the closing price when
Technical Analysis creating moving average penetration systems.

The Typical Price is a building block of the Money Flow Index.
Reference
Accumulation Swing Index Example
Advance/Decline Ratio The following chart shows the Typical Price indicator on top of Value Line's bar
Advancing-Declining Issues chart.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model Calculation
Fourier Transform
Fundamental Analysis The Typical Price indicator is calculated by adding the high, low, and closing
Gann Angles prices together, and then dividing by three. The result is the average, or typical
Herrick Payoff Index price.
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/typicalprice.html [5/11/2001 3:22:12 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ULTIMATE OSCILLATOR
q Moving averages
q Indicators
Overview
q Market indicators Oscillators typically compare a security's smoothed price with its price x-periods
q Line studies
ago. Larry Williams noted that the value of this type of oscillator can vary greatly
depending on the number of time periods used during the calculation. Thus, he
q Periodicity developed the Ultimate Oscillator that uses weighted sums of three oscillators,
q The time element each of which uses a different time period.
q Conclusion
The three oscillators are based on Williams' definitions of buying and selling
q Order the Book "pressure."
q Learn more about
Technical Analysis

Interpretation
Reference
Absolute Breadth Index Williams recommends that you initiate a trade following a divergence and a
Accumulation/Distribution breakout in the Ultimate Oscillator's trend. The following text sumarizes these
Accumulation Swing Index rules.
Advance/Decline Ratio Buy when:
Advancing, Declining, 1. A bullish divergence occurs. This is when the security's price makes a
Unchanged Volume lower low that is not confirmed by a lower low in the Oscillator.
Andrews' Pitchfork
Arms Index 2. During the bullish divergence, the Oscillator falls below 30.
Average True Range
Bollinger Bands 3. The Oscillator then rises above the highest point reached during the span
Breadth Thrust
of the bullish divergence. This is the point at which you buy.
Bull/Bear Ratio
Close long positions when:
CANSLIM
Chaikin Oscillator
q The conditions are met to sell short (explained below), or
q The Oscillator rises above 50 and then falls below 45, or
q The Oscillator rises above 70. (I sometimes wait for the oscillator to then
Cycles
Demand Index
fall below 70.)
Sell short when:
Dow Theory
Ease of Movement
1. A bearish divergence occurs. This is when the security's price makes a
higher high that is not confirmed by a higher high in the Oscillator.
Elliott Wave Theory
2. During the bearish divergence, the Oscillator rises above 50.
Equivolume
Fibonacci Studies
3. The Oscillator then falls below the lowest point reached during the span of
Four Percent Model the bearish divergence. This is the point at which you sell short.
Fourier Transform
Fundamental Analysis Close short positions when:
Gann Angles
Herrick Payoff Index q The conditions are met to buy long (explained above), or
Interest Rates
Kagi q The Oscillator rises above 65, or
Large Block Ratio
Linear Regression Lines q The Oscillator falls below 30. (I will sometimes wait for the oscillator to
MACD then rise above 30.)
Mass Index
Median Price Example
Member Short Ratio
Momentum The following chart shows Autozone and its Ultimate Oscillator.
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Price Rate-of-Change I drew "sell" arrows when the conditions for a sell signal were met:
Public Short Ratio
Puts/Calls Ratio q A bearish divergence occurred (lines "A") when prices made a new high
Quadrant Lines that was not confirmed by the Oscillator.
Relative Strength,
Comparative q The Oscillator rose above 50 during the divergence.
Renko q The Oscillator fell below the lowest point reached during the span of the
Speed Resistance Lines divergence (line "B").
Spreads
Standard Deviation Similarly, I drew "buy" arrows when the conditions for a buy signal were met:
STIX
Stochastic Oscillator q A bullish divergence occurred (lines "C") then prices made a new low that
Swing Index was not confirmed by the Oscillator.
Three Line Break
Time Series Forecast q The Oscillator fell below 30 during the divergence.
Tirone Levels
Total Short Ratio q The Oscillator rose above the highest point reached during the span of the
Trade Volume Index
divergence (line "D").
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/ultimateosc.html [5/11/2001 3:22:17 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
UPSIDE/DOWNSIDE RATIO
q Moving averages
q Indicators
Overview
q Market indicators The Upside/Downside Ratio shows the relationship between up (advancing) and
q Line studies
down (declining) volume on the New York Stock Exchange. Click here for more
information on Advancing, declining, and unchanged volume.
q Periodicity
q The time element
Conclusion
q
Interpretation
q Order the Book
q Learn more about When the Upside/Downside Ratio is greater than 1.0, it is showing that there is
Technical Analysis more volume associated with stocks that are increasing in price than with stocks
that are decreasing in price.
Reference While discussing advancing/declining volume in his book, Winning on Wall Street,
Absolute Breadth Index Martin Zweig states, "Every bull market in history, and many good intermediate
Accumulation/Distribution advances, have been launched with a buying stampede that included one or
more 9-to-1 days" ("9-to-1" refers to a day were the Upside/Downside Ratio is
greater than nine). He goes on to say, "the 9-to-1 up day is a most encouraging
sign, and having two of them within a reasonably short span is very bullish. I call
Advancing, Declining, it a "double 9-to-1" when two such days occur with three months of one another."
Unchanged Volume
Andrews' Pitchfork Table 15 (originally tabulated through 1984 by Martin Zweig) shows all of the
Arms Index double 9-to-1 buy signals that occurred from 1962 to October 1994. As of this
Average True Range writing, no signals have occurred since the last one on June 8, 1988.
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
Table 15
Candlesticks, Japanese % Change % Change % Change
CANSLIM Date DJIA
3 months later 6 months later 12 months later
Chaikin Oscillator
Commodity Channel Index 11/12/62 624 +8.5 +15.9 +20.2
Correlation Analysis 11/19/63 751 +6.9 +9.1 +16.5
Cycles 10/12/66 778 +6.9 +8.6 +17.4
Demand Index
Detrended Price Oscillator 5/27/70 663 +14.6 +17.8 +16.5
Dow Theory 11/19/71 830 +11.8 +17.0 +22.8
Ease of Movement
Efficient Market Theory 9/19/75 830 +1.7 +18.1 +19.9
Elliott Wave Theory
Envelopes (trading bands) 4/22/80 790 +11.8 +17.0 +22.8
Equivolume
Fibonacci Studies 3/22/82 820 -2.4 +13.2 +37.0
Four Percent Model
Fourier Transform
8/20/82 869 +15.1 +24.3 +38.4
Gann Angles
1/6/83 1,071 +3.9 +14.0 +20.2
8/2/84 1,166 +4.4 +10.6 +16.0
Interest Rates
Kagi 11/23/84 1,220 +4.7 +6.2 +19.3
Large Block Ratio
Linear Regression Lines 1/2/87 1,927 +20.4 +26.4 +4.6
MACD
Mass Index 10/29/87 1,938 +1.0 +4.9 +10.8
McClellan Summation Index 1/4/88 2,015 -1.7 +7.1 +8.0
Median Price
Member Short Ratio 6/8/88 2,102 -1.9 +1.9 +19.7
Momentum
Money Flow Index AVERAGE +6.4/qtr. +12.5/half +18.4/year
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Example
The following chart shows the Dow Jones Industrial Average during most of the
1980s.
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX I drew "buy" arrows on the chart where double 9-to-1 buy signals occurred.
Swing Index
Three Line Break Calculation
Tirone Levels The Upside/Downside Ratio is calculated by dividing the daily volume of
Total Short Ratio advancing stocks by the daily volume of declining stocks.
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/updownsiderat.html [5/11/2001 3:22:23 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
UPSIDE-DOWNSIDE VOLUME
q Moving averages
q Indicators
Overview
q Market indicators The Upside-Downside Volume indicator shows the difference between up
q Line studies
(advancing) and down (declining) volume on the New York Stock Exchange.
Click here for more information on Advancing, declining, and unchanged volume.
q Periodicity
q The time element
Conclusion
q
Interpretation
q Order the Book
q Learn more about The Upside-Downside Volume indicator shows the net flow of volume into or out
Technical Analysis of the market. A reading of +40 indicates that up volume exceeded down volume
by 40 million shares. Likewise a reading of -40 would indicate that down volume
exceeded up volume by 40 million shares.
Reference
Absolute Breadth Index The indicator is useful to compare today's volume action with previous days.
Accumulation/Distribution Currently, normal readings are in the area of ±50. Very active days exceed ±150
Accumulation Swing Index million shares (the October, 1987 crash reached -602).
Advance/Decline Ratio The Cumulative Volume Index is a cumulative total of the Upside-Downside
Volume indicator.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Example
Bollinger Bands
Breadth Thrust
The following chart shows the Dow Jones Industrial Average and the
Bull/Bear Ratio
Upside-Downside Volume indicator.
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio I labeled the DJIA with "buy" arrows when the Upside-Downside Volume indicator
Linear Regression Lines was greater than 200 and with "sell" arrows when the indicator was less than
MACD
-200.
Mass Index
Median Price Calculation
Member Short Ratio
Momentum The Upside-Downside Volume indicator is calculated by subtracting the daily
Money Flow Index volume of advancing stocks by the daily volume of declining stocks.
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/updownsidevol.html [5/11/2001 3:22:30 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
VERTICAL HORIZONTAL FILTER
q Moving averages
q Indicators
Overview
q Market indicators The Vertical Horizontal Filter ("VHF") determines whether prices are in a trending
q Line studies
phase or a congestion phase.
q Periodicity The VHF was first presented by Adam White in an article published in the August,
q The time element 1991 issue of Futures Magazine.
q Conclusion
q Order the Book
q Learn more about
Interpretation
Technical Analysis
Probably the biggest dilemma in technical analysis is determining if prices are
trending or are in a trading-range. Trend-following indicators such as the MACD
Reference and moving averages are excellent in trending markets, but they usually generate
Absolute Breadth Index multiple conflicting trades during trading-range (or "congestion") periods. On the
Accumulation/Distribution other hand, oscillators such as the RSI and Stochastics work well when prices
Accumulation Swing Index fluctuate within a trading range, but they almost always close positions
Advance/Decline Line prematurely during trending markets. The VHF indicator attempts to determine
Advance/Decline Ratio the "trendiness" of prices to help you decide which indicators to use.
Advancing, Declining, There are three ways to interpret the VHF indicator:
Unchanged Volume
Andrews' Pitchfork 1. You can use the VHF values themselves to determine the degree that
Arms Index prices are trending. The higher the VHF, the higher the degree of trending
Average True Range
and the more you should be using trend-following indicators.
Bollinger Bands
Breadth Thrust
2. You can use the direction of the VHF to determine whether a trending or
Bull/Bear Ratio
congestion phase is developing. A rising VHF indicates a developing
CANSLIM
trend; a falling VHF indicates that prices may be entering a congestion
Chaikin Oscillator phase.
Commodity Selection Index 3. You can use the VHF as a contrarian indicator. Expect congestion periods
Correlation Analysis to follow high VHF values; expect prices to trend following low VHF values.
Cycles
Demand Index
Directional Movement The following chart shows Motorola and the VHF indicator.
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
The VHF indicator was relatively low from 1989 through most of 1992. These low
Moving Averages values showed that prices were in a trading range. From late-1992 through 1993
Negative Volume Index the VHF was significantly higher. These higher values indicated that prices were
New Highs-Lows trending.
Cumulative
New Highs-New Lows The 40-week (i.e., 200-day) moving average on Motorola's prices demonstrates
New Highs/Lows Ratio the value of the VHF indicator. You can see that a classic moving average trading
Odd Lot Balance Index system (buy when prices rise above their moving average and sell when prices
Odd Lot Purchases/Sales fall below their average) worked well in 1992 and 1993, but generated numerous
Odd Lot Short Ratio whipsaws when prices were in a trading range.
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis Calculation
Overbought/Oversold
Parabolic SAR To calculate the VHF indicator, first determine the highest closing price ("HCP")
Patterns and the lowest closing price ("LCP") over the specified time period (often
Percent Retracement 28-days).
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio Next, subtract the lowest closing price from the highest closing price and take the
Quadrant Lines absolute value of this difference. This value will be the numerator.
Relative Strength,
Comparative
Renko
To determine the denominator, sum the absolute value of the difference between
Spreads
each day's price and the previous day's price over the specified time periods.
Standard Deviation
STIX
Swing Index
Three Line Break
Time Series Forecast The VHF is then calculated by dividing the previously defined numerator by the
Tirone Levels
denominator.
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/verthorizfilter.html [5/11/2001 3:22:35 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
VOLATILITY, CHAIKIN'S
q Moving averages
q Indicators
Overview
q Market indicators Chaikin's Volatility indicator compares the spread between a security's high and
q Line studies
low prices. It quantifies volatility as a widening of the range between the high and
the low price.
q Periodicity
q The time element
q Order the Book
q Learn more about
There are two ways to interpret this measure of volatility. One method assumes
Technical Analysis that market tops are generally accompanied by increased volatility (as investors
get nervous and indecisive) and that the latter stages of a market bottom are
generally accompanied by decreased volatility (as investors get bored).
Reference
Absolute Breadth Index Another method (Mr. Chaikin's) assumes that an increase in the Volatility
Accumulation/Distribution indicator over a relatively short time period indicates that a bottom is near (e.g., a
Accumulation Swing Index panic sell-off) and that a decrease in volatility over a longer time period indicates
Advance/Decline Line an approaching top (e.g., a mature bull market).
Advancing-Declining Issues As with almost all experienced investors, Mr. Chaikin recommends that you do
Advancing, Declining, not rely on any one indicator. He suggests using a moving average penetration or
Unchanged Volume trading band system to confirm this (or any) indicator.
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Example
Bull/Bear Ratio The following chart shows the Eurodollar and Chaikin's Volatility indicator.
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi The indicator reached a rapid peak following a panic sell-off (point "A"). This
Large Block Ratio indicated that a bottom was near (point "B").
MACD
Mass Index
Calculation
McClellan Summation Index Chaikin's Volatility is calculated by first calculating an exponential moving
Median Price
average of the difference between the daily high and low prices. Chaikin
Member Short Ratio
Momentum
recommends a 10-day moving average.
Money Flow Index
Moving Averages
New Highs-Lows Next, calculate the percent that this moving average has changed over a
Cumulative specified time period. Chaikin again recommends 10 days.
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/volatilchaikins.html [5/11/2001 3:22:40 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
VOLUME
q Moving averages
q Indicators
Overview
q Market indicators Volume is simply the number of shares (or contracts) traded during a specified
q Line studies time frame (e.g., hour, day, week, month, etc). The analysis of volume is a basic
yet very important element of technical analysis. Volume provides clues as to the
q Periodicity
intensity of a given price move.
q The time element
q Conclusion
q Learn more about
Technical Analysis Low volume levels are characteristic of the indecisive expectations that typically
occur during consolidation periods (i.e., periods where prices move sideways in a
trading range). Low volume also often occurs during the indecisive period during
Reference market bottoms.
Accumulation/Distribution High volume levels are characteristic of market tops when there is a strong
Accumulation Swing Index consensus that prices will move higher. High volume levels are also very
Advance/Decline Line common at the beginning of new trends (i.e., when prices break out of a trading
range). Just before market bottoms, volume will often increase due to
panic-driven selling.
Unchanged Volume
Andrews' Pitchfork
Volume can help determine the health of an existing trend. A healthy up-trend
Arms Index
should have higher volume on the upward legs of the trend, and lower volume on
Average True Range the downward (corrective) legs. A healthy downtrend usually has higher volume
Bollinger Bands on the downward legs of the trend and lower volume on the upward (corrective)
Breadth Thrust legs.
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator Example
Commodity Selection Index The following chart shows Merck and its volume.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
McClellan Oscillator Prices peaked at the end 1991 following a long rally. This was followed by a price
McClellan Summation Index decline (trendline "A1"). Notice how volume was relatively high during this price
Median Price decline (trendline "A2"). The increase in volume during the price decline showed
Member Short Ratio that many investors would sell when prices declined. This was bearish.
Momentum
Money Flow Index Prices then tried to rally (trendline "B1"). However, volume decreased
Moving Averages dramatically (trendline "B2") during this rally. This showed that investors were not
Negative Volume Index willing to buy, even when prices were rising. This too, was bearish.
New Highs-Lows
Cumulative This pattern continued throughout the decline in 1992 and 1993. When prices
New Highs-New Lows rallied, they did so on decreased volume. When prices declined, they did so on
New Highs/Lows Ratio increased volume. This showed, again and again, that the bears were in control
Odd Lot Balance Index and that prices would continue to fall.
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/volume.html [5/11/2001 3:22:44 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
VOLUME OSCILLATOR
q Moving averages
q Indicators
Overview
q Market indicators The Volume Oscillator displays the difference between two moving averages of a
q Line studies
security's volume. The difference between the moving averages can be
expressed in either points or percentages.
q Periodicity
q The time element
Conclusion
q
Interpretation
q Order the Book
q Learn more about You can use the difference between two moving averages of volume to
Technical Analysis determine if the overall volume trend is increasing or decreasing. When the
Volume Oscillator rises above zero, it signifies that the shorter-term volume
moving average has risen above the longer-term volume moving average, and
Reference thus, that the short-term volume trend is higher (i.e., more volume) than the
Absolute Breadth Index longer-term volume trend.
Accumulation Swing Index There are many ways to interpret changes in volume trends. One common belief
Advance/Decline Line is that rising prices coupled with increased volume, and falling prices coupled
with decreased volume, is bullish. Conversely, if volume increases when prices
fall, and volume decreases when prices rise, the market is showing signs of
Unchanged Volume
underlying weakness.
Andrews' Pitchfork
Arms Index
The theory behind this is straight forward. Rising prices coupled with increased
Average True Range volume signifies increased upside participation (more buyers) that should lead to
Bollinger Bands a continued move. Conversely, falling prices coupled with increased volume
Breadth Thrust (more sellers) signifies decreased upside participation.
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator Example
Commodity Selection Index The following chart shows Xerox and 5/10-week Volume Oscillator.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD I drew linear regression trendlines on both the prices and the Volume Oscillator.
Mass Index
McClellan Oscillator This chart shows a healthy pattern. When prices were moving higher, as shown
McClellan Summation Index by rising linear regression trendlines, the Volume Oscillator was also rising. When
Median Price prices were falling, the Volume Oscillator was also falling.
Member Short Ratio
Momentum
Money Flow Index
Moving Averages Calculation
New Highs-Lows The Volume Oscillator can display the difference between the two moving
Cumulative averages as either points or percentages. To see the difference in points,
New Highs-New Lows subtract the longer-term moving average of volume from the shorter-term moving
New Highs/Lows Ratio average of volume:
Odd Lot Short Ratio
On Balance Volume
Open Interest To display the difference between the moving averages in percentages, divide
Open-10 TRIN the difference between the two moving averages by the shorter-term moving
Option Analysis average:
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



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Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
VOLUME RATE-OF-CHANGE
q Moving averages
q Indicators
Overview
q Market indicators The Volume Rate-of-Change ("ROC") is calculated identically to the Price ROC,
q Line studies except it displays the ROC of the security's volume, rather than of its closing
price.
q Periodicity
q The time element
Conclusion
q
Interpretation
q Order the Book
q Learn more about Almost every significant chart formation (e.g., tops, bottoms, breakouts, etc) is
Technical Analysis accompanied by a sharp increase in volume. The Volume ROC shows the speed
at which volume is changing.
Reference Additional information on the interpretation of volume trends can be found in the
Absolute Breadth Index discussions on Volume and on the Volume Oscillator.
Advancing, Declining, The following chart shows Texas Instruments and its 12-day Volume ROC.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
When prices broke out of the triangular pattern, they were accompanied by a
Four Percent Model sharp increase in volume. The increase in volume confirmed the validity of the
Fourier Transform price breakout.
Gann Angles
Interest Rates
Calculation
Kagi The Volume Rate-Of-Change indicator is calculated by dividing the amount that
Large Block Ratio
volume has changed over the last n-periods by the volume n-periods ago. The
MACD
result is the percentage that the volume has changed in the last n-periods.
Mass Index
If the volume is higher today than n-periods ago, the ROC will be a positive
number. If the volume is lower today than n-periods ago, the ROC will be a
Median Price negative number.
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/volrateochange.html [5/11/2001 3:22:55 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
WEIGHTED CLOSE
q Moving averages
q Indicators
Overview
q Market indicators The Weighted Close indicator is simply an average of each day's price. It gets its
q Line studies
name from the fact that extra weight is given to the closing price. The Median
Price and Typical Price are similar indicators.
q Periodicity
q The time element
q Conclusion
q Order the Book
Interpretation
q Learn more about When plotting and back-testing moving averages, indicators, trendlines, etc,
Technical Analysis some investors like the simplicity that a line chart offers. However, line charts that
only show the closing price can be misleading since they ignore the high and low
price. A Weighted Close chart combines the simplicity of the line chart with the
Reference scope of a bar chart, by plotting a single point for each day that includes the high,
low, and closing price.
Example
The following chart shows the Weighted Close plotted on top of a normal
Unchanged Volume
Andrews' Pitchfork
high/low/close bar chart of Peoplesoft.
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Calculation
Herrick Payoff Index The Weighted Close indicator is calculated by multiplying the close by two,
Interest Rates
adding the high and the low to this product, and dividing by four. The result is the
Kagi
Large Block Ratio
average price with extra weight given to the closing price.
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/weightedclose.html [5/11/2001 3:23:00 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
WILLIAM'S
q Moving averages ACCUMULATION/DISTRIBUTION
q Indicators
q Line studies
Accumulation is a term used to describe a market controlled by buyers; whereas
q Periodicity
distribution is defined by a market controlled by sellers.
q The time element
q Conclusion
q Learn more about
Technical Analysis Williams recommends trading this indicator based on divergences:

q Distribution of the security is indicated when the security is making a new
Reference high and the A/D indicator is failing to make a new high. Sell.
Accumulation/Distribution q Accumulation of the security is indicated when the security is making a
Accumulation Swing Index new low and the A/D indicator is failing to make a new low. Buy.
Unchanged Volume
Andrews' Pitchfork The following chart shows Proctor and Gamble and the Williams'
Arms Index Accumulation/Distribution indicator.
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Fundamental Analysis A bearish divergence occurred when the prices were making a new high (point
Gann Angles "A2") and the A/D indicator was failing to make a new high (point "A1"). This was
Herrick Payoff Index the time to sell.
Interest Rates
Kagi
Large Block Ratio
Linear Regression Lines Calculation
MACD
Mass Index To calculate Williams' Accumulation/Distribution indicator, first determine the
McClellan Oscillator True Range High ("TRH") and True Range Low ("TRL").
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
Negative Volume Index Today's accumulation/distribution is then determined by comparing today's
New Highs-Lows closing price to yesterday's closing price.
Cumulative
New Highs-New Lows If today's close is greater than yesterday's close:
Odd Lot Short Ratio
On Balance Volume If today's close is less than yesterday's close:
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
If today's close is equal to yesterday's close:
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure The Williams' Accumulation/Distribution indicator is a cummulative total of these
Positive Volume Index daily values.
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/williamsaccumdistr.html [5/11/2001 3:23:06 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
WILLIAM'S % R
q Moving averages
q Indicators
Overview
q Market indicators Williams’ %R (pronounced "percent R") is a momentum indicator that measures
q Line studies
overbought/oversold levels. Williams’ %R was developed by Larry Williams.
q Periodicity
q The time element
Interpretation
q Conclusion The interpretation of Williams' %R is very similar to that of the Stochastic
q Order the Book Oscillator (page 244) except that %R is plotted upside-down and the Stochastic
q Learn more about
Oscillator has internal smoothing.
Technical Analysis
To display the Williams’ %R indicator on an upside-down scale, it is usually
plotted using negative values (e.g., -20%). For the purpose of analysis and
Reference discussion, simply ignore the negative symbols.
Accumulation/Distribution Readings in the range of 80 to 100% indicate that the security is oversold while
Accumulation Swing Index readings in the 0 to 20% range suggest that it is overbought.
Advance/Decline Ratio As with all overbought/oversold indicators, it is best to wait for the security's price
Advancing-Declining Issues to change direction before placing your trades. For example, if an
Advancing, Declining, overbought/oversold indicator (such as the Stochastic Oscillator or Williams' %R)
Unchanged Volume is showing an overbought condition, it is wise to wait for the security's price to
Andrews' Pitchfork turn down before selling the security. (The MACD is a good indicator to monitor
Arms Index change in a security's price.) It is not unusual for overbought/oversold indicators
Average True Range to remain in an overbought/oversold condition for a long time period as the
Bollinger Bands
security's price continues to climb/fall. Selling simply because the security
Breadth Thrust
Bull/Bear Ratio
appears overbought may take you out of the security long before its price shows
signs of deterioration.
CANSLIM
Chaikin Oscillator
An interesting phenomena of the %R indicator is its uncanny ability to anticipate a
Commodity Channel Index reversal in the underlying security's price. The indicator almost always forms a
Commodity Selection Index peak and turns down a few days before the security's price peaks and turns
Correlation Analysis down. Likewise, %R usually creates a trough and turns up a few days before the
Cumulative Volume Index security's price turns up.
Cycles
Demand Index
Dow Theory The following chart shows the OEX index and its 14-day Williams' %R. I drew
Ease of Movement "buy" arrows each time the %R formed a trough below 80%. You can see that in
Efficient Market Theory almost every case this occurred one or two days before the prices bottomed.
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows Calculation
Odd Lot Balance Index The formula used to calculate Williams' %R is similar to the Stochastic Oscillator:
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/williamspercr.html [5/11/2001 3:23:12 am]



Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ZIG ZAG
q Moving averages
q Indicators
Overview
q Market indicators The Zig Zag indicator filters out changes in an underlying plot (e.g., a security's
q Line studies
price or another indicator) that are less than a specified amount. The Zig Zag
indicator only shows significant changes.
q Periodicity
q The time element
q Order the Book
q Learn more about
The Zig Zag indicator is used primarily to help you see changes by punctuating
Technical Analysis the most significant reversals.

It is very important to understand that the last "leg" displayed in a Zig Zag chart
Reference can change based on changes in the underlying plot (e.g., prices). This is the
Absolute Breadth Index only indicator in this book where a change in the security's price can change a
Accumulation/Distribution previous value of the indicator. Since the Zig Zag indicator can adjust its values
Accumulation Swing Index based on subsequent changes in the underlying plot, it has perfect hindsight into
Advance/Decline Line what prices have done. Please don't try to create a trading system based on the
Advance/Decline Ratio Zig Zag indicator--its hindsight is much better than its foresight!
Advancing, Declining, In addition to identifying significant prices reversals, the Zig Zag indicator is also
Unchanged Volume useful when doing Elliot Wave counts.
Andrews' Pitchfork
Arms Index
Average True Range
For additional information on the Zig Zag indicator, refer to Filtered Waves by
Bollinger Bands Arthur Merrill.
Breadth Thrust
Bull/Bear Ratio
CANSLIM Example
Chaikin Oscillator
Commodity Channel Index The following chart shows the 8% Zig Zag indicator plotted on top of Mattel's bar
Commodity Selection Index chart.
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index This Zig Zag indicator ignores changes in prices that are less than 8%.
Median Price
Member Short Ratio Calculation
Momentum
Money Flow Index The Zig Zag indicator is calculated by placing imaginary points on the chart when
Moving Averages prices reverse by at least the specified amount. Straight lines are then drawn to
Negative Volume Index connect these imaginary points.
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/zigzag.html [5/11/2001 3:23:15 am]

Bibliography - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
BIBLIOGRAPHY
q Moving averages
q Indicators
Appel, Gerald and Hitschler, Fred. Stock Market Trading Systems. Homewood,
q Market indicators
IL: Dow Jones-Irwin, 1980
q Line studies
q Periodicity Appel, Gerald. The Moving Average Convergence-Divergence Method. Great
Neck, NY: Signalert, 1979.
q The time element
q Conclusion Arms, Richard W., Jr. The Arms Index (TRIN). Homewood, IL: Dow Jones-Irwin,
q Order the Book 1989.
q Learn more about Arms, Richard W., Jr. Volume Cycles in the Stock Market. Salt Lake City, UT:
Technical Analysis
EQUIS International, Inc., 1994.

Cohen, A.W. How to Use the Three-Point Reversal Method of Point & Figure
Reference
Stock Market Trading. Larchmont, NY: Chartcraft, 1984.
Dobson, Edward D. Understanding Fibonacci Numbers. Greenville, SC:
Advance/Decline Line Traders Press, 1984.
Advancing-Declining Issues Edwards. Rpberts D. and Magee, John. Technical Analysis of Stock Trends.
Advancing, Declining, Sixth Edition. Boston, MA: John Magee, Inc., 1992 (Distributed by New York
Unchanged Volume Institute of Finance.)
Andrews' Pitchfork
Arms Index Fosback, Norman G. Stock Market Logic. Chicago, IL: Dearborn Financial
Average True Range Publishing, Inc., 1992.
Bollinger Bands
Breadth Thrust Frost, A.J. and Prechter, Robert. Elliott Wave Priciple. Gainesville, GA: New
Bull/Bear Ratio Classics Library, Inc., 1985.
CANSLIM Granville, Joseph E. New Strategy of Daily Stock Market Timing form
Chaikin Oscillator Maximum Profits. Englewood Cliffs, NJ: Prentice-Hall, 1976.
Commodity Selection Index McClellan, Sherman and Marian. Patterns for Profit: The McClellan Oscillator
and Summation Index. Lakewood, WA: McClellan Financial Publications, Inc.,
Cycles
1989.
Demand Index
Merrill, Arthur. Filtered Waves--Basic Theory. Chappaqua, NY: The Analysis
Directional Movement Press, 1977. (Available from Technical Trends, P.O. Box 792, Wilton, CT 06897)
Dow Theory
Ease of Movement Natenberg, Sheldon. Option Volatility and Pricing Strategies, revised edition.
Efficient Market Theory Chicago, IL: Probus Publishing Company, 1994.
Elliott Wave Theory
Envelopes (trading bands) Nison, Steve. Beyond Candlesticks. New York, NY: John Wiley & Sons, 1994.
Equivolume
Fibonacci Studies Nison, Steve. Japanese Candlestick Charting Techniques. New York, NY:
Four Percent Model McGraw-Hill, Inc., 1991.
Fourier Transform
Fundamental Analysis O'Neil, William J. How to Make Money in Stocks. Second Edition. New York,
Gann Angles NY: McGraw-Hill, Inc., 1995.
Interest Rates Pring, Martin J. Technical Analysis Explained. Third Edition. New York, NY:
Kagi Trend Research, 1978.
Large Block Ratio
Linear Regression Lines Wilder, J. Welles. New Concepts in Technical Trading Systems. Greensboro,
MACD NC: Trend Research, 1978.
Mass Index
McClellan Oscillator Zweig, Martin. Winning on Wall Street. New York, NY: Warner Books, 1986.
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/bibliography.html [5/11/2001 3:23:18 am]

About the Author - Technical Analysis from A to Z


Contents
Preface
Acknowledgments
To Learn More
Introduction

q Charts
q

q
Trends
ABOUT THE AUTHOR
q Moving averages
q Indicators
Steven B. Achelis (pronounced "ah kay' liss") is the founder,
q Market indicators
owner, and president of EQUIS International, Inc. His company is a
q Line studies leading provider of investment analysis, portfolio management, and
q Periodicity stock market data collection software.
q The time element
An experienced investment analyst and trader, Steve has
q Conclusion published a number of articles on stock market timing and is the
q Order the Book author of The Market Indicator Interpretation Guide.
q Learn more about He is also a gifted computer programmer and the author of a large number of
Technical Analysis
programs for the IBM PC and compatible, including the best-selling MetaStock
software program.
Reference
Steve has appeared on various national radio and television shows including
Accumulation/Distribution CBS and the former Financial News Network (now CNBC). When he is not
Accumulation Swing Index immersed in investing and technology, he likes to spend his time windsurfing,
Advance/Decline Line snowboarding, and being with his family.
Unchanged Volume
Andrews' Pitchfork
Arms Index
Average True Range
Bollinger Bands
Breadth Thrust
Bull/Bear Ratio
CANSLIM
Chaikin Oscillator
Cycles
Demand Index
Dow Theory
Ease of Movement
Elliott Wave Theory
Equivolume
Fibonacci Studies
Four Percent Model
Fourier Transform
Gann Angles
Interest Rates
Kagi
Large Block Ratio
MACD
Mass Index
Median Price
Member Short Ratio
Momentum
Money Flow Index
Moving Averages
New Highs-Lows
Cumulative
New Highs-New Lows
Odd Lot Short Ratio
On Balance Volume
Open Interest
Open-10 TRIN
Option Analysis
Overbought/Oversold
Parabolic SAR
Patterns
Percent Retracement
Performance
Point & Figure
Price Oscillator
Public Short Ratio
Puts/Calls Ratio
Quadrant Lines
Relative Strength,
Comparative
Renko
Spreads
Standard Deviation
STIX
Swing Index
Three Line Break
Tirone Levels
Total Short Ratio
Trade Volume Index
Trendlines
TRIX
Typical Price
Ultimate Oscillator
Volume
Volume Oscillator
Weighted Close
Williams'
Williams' %R
Zig Zag
Bibliography
About the Author



http://www.equis.com/free/taaz/abouttheauthor.html [5/11/2001 3:23:24 am]

Technical Analysis Ato Z

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