_______________________________________
Indicators
This section describes how to use the technical Indicators to predict future price changes of stocks.
Chart indicators are technical analysis tools which plot additional information onto a chart for the purpose of pin-pointing or predicting significant moments in the life of a data series. They are created by taking the underlying data values and applying them in a mathematical formula to produce a different series of values for plotting. Many indicators require input values to calculate properly.
The available indicators are categorized as follows:
1.Averages 2.Bands 3.Other Indicators
STEPS
To apply indicators:
1.Click the arrowhead next to Indicators on the standard chart toolbar, click on the required indicator and edit the properties.
|
Averages
Averages are commonly used in technical analysis to smooth out price action over time and thereby emphasize the future direction of a trend. Listed below are the Averages available with the Chart.
Moving Average
A Moving Average is an indicator that calculates the average value of prices (or any specified data series) over a period of predetermined period of time.
The most popular method of interpreting a moving average is to compare the relationship between a moving average of the price with the price itself. A buy signal is generated when the price rises above its moving average and a sell signal is generated when the
price falls below its moving average.
How to interpret price trends using the Moving Average:
The interpretation of an indicator’s moving average is similar to the interpretation of the price’s moving average: when the indicator rises above its moving average, it signifies a continued upward movement by the indicator; when the indicator falls below its moving average, it signifies a continued downward movement by the indicator.
Bands
Bands are generally used in technical analysis to measure the highness or lowness of a securities price, relative to previous trades. The type of band available with NetPlus is Bollinger Bands.
Bollinger Bands
Bollinger Bands consists of two lines. They are placed on the equal distance to definite amount of usual discrepancies. While the value of standard deflection depends on the price unsteadiness, the lines automatically control their width. The width increases if the market is more volatile and decreases when the market is not so unsteady.
How to interpret price trends using the Bollinger Bands:
•The fluctuations of the prices which begin from one of the line’s borders, as a rule, reach the other border. The aforesaid feature can be helpful for forecasting price’s orienting points. •Uncontrolled changing of prices often happens after the line’s shortening, which indicates decreasing of unsteadiness. •If after the rises and falls outside the lines there are rises and falls inside the lines, it’s probable that the turn of tendency can occur. •If the prices go outside the borders, the ongoing tendency is expected to be continued.
Bollinger Bands can help to define if ongoing data field values are behaving normally
or breaking out in a new direction. For instance, when the closing price of a market
moves over its upper Bollinger Band, it usually increases in that direction. Bollinger
Bands also helps to find out when trend reversals may happen. A reversal is usually
characterized by new peaks or falls outside of the bands followed by another peak or
fall inside the bands.
Other Indicators
The indicators described in this section includes all indicators other than Averages and Bands that are available with charts, and these indicators can be used to forecast future price levels as well as the price direction of a security. Enlisted below are the Other Indicators available with charts.
1.Moving Average Convergence-Divergence (MACD) 2.Momentum
Moving Average Convergence-Divergence (MACD)
The most popular construction of the MACD first calculates the difference between two moving averages and plots that as the “Fast” line; A second “Signal” (trigger) line is then calculated from the resulting “Fast” line and plotted in the same frame as the “Fast” line. The “standard” MACD values for the “Fast” line are a 12-period exponential moving average and a 26-period exponential moving average and a 9-period exponential moving average for the “Signal” line.
How to interpret price trends using the MACD:
The MACD is widely used as a trend-following indicator and tends to work most effectively when measuring wide-swinging market movements. There are three basic techniques for using the MACD to generate trading signals.
1.Crossovers: 1) Fast line/Signal line Crossover: A buy signal occurs when the Fast line crosses above the Signal line and a sell signal occurs when the Fast line crosses below the Signal line. 2) Fast line / Zero-Level Crossover: When the Fast line crosses above zero a buy signal is given. Alternatively, when the Fast line crosses below zero a sell signal is given.
2.Divergence: Looking for divergences between the MACD and price can prove to be very effective in identifying potential reversal and/or trend continuation points in price movement. There are several types of divergences:
Classic Divergence (aka: Regular Divergence)
Bullish Divergence = Lower lows in price and higher lows in the MACD
Bearish Divergence = Higher highs in price and lower highs in the MACD
Hidden Divergence (aka: Reverse, Continuation, Trend Divergence)
Bullish Divergence = Lower lows in MACD and higher lows in price
Bearish Divergence = Higher highs in MACD and lower highs in price
3.Overbought/Oversold Conditions: The MACD can be used to identify potential overbought and oversold conditions in price movements. These conditions are generated by comparing the distance between the shorter moving average and the longer moving average; if the shorter moving average separates dramatically from the longer moving average it may be an indication that price is over-extending and will soon return to more realistic levels.
Momentum
The momentum indicator is one of the simplest equations available in modern technical analysis. Momentum is a measure of price change velocity calculated as the difference between the current bar’s price and the price a selected number of bars ago. Basically, it represents the rate of change of the trading instrument’s price over those specified time periods. The faster prices rise, the larger the increase in momentum. The faster prices decline, the larger the decrease in momentum. As the price movement begins to slow the momentum will also slow and return to a more median level.
The Momentum indicator is a versatile indicator capable of producing a wide array of buy and sell signals. However, there are three basic methods of interpreting the Momentum indicator:
1.Zero-Level Crossovers: A buy signal occurs when Momentum crosses above zero and a sell signal occurs when momentum crosses below zero. 2.Extreme Overbought/Oversold Levels: To use Momentum as an overbought/oversold indicator, the user must identify potential overbought and oversold levels based on previous indicator readings; When choosing the overbought and oversold levels the user should ensure that at least two thirds of previous Momentum values fall between the overbought and oversold levels. Readings above the overbought level imply an overbought condition (and a pending price correction) while readings below the oversold level imply an oversold condition (and a pending rally). 3.Trend Line Breakouts: Trend lines can be drawn connecting the peaks and troughs of the Momentum indicator. Often momentum begins to turn before price thereby making it a leading indicator. Momentum readings breaking above a declining trend line warns of a possible bullish reversal while momentum readings breaking below a rising trend line warns of a possible bearish reversal.
|
