The following information is provided
without warranty of any kind.
Alpha-Beta Trend Channel
The Alpha-Beta Trend Channel study uses the standard
deviation of price variation to establish two trend
lines, one above and one below the moving average of a
price field. This creates a channel (band) where the
great majority of price field values.will occur.
Arms Ease of Movement
Developed by Richard W. Arms, Jr., this analysis
routine expands on Mr. Arms' Equivolume charting tool by
quantifying the shape aspects of the plotted boxes. The
purpose of this quantifying is to determine the ease, or
lack thereof, with which a particular issue is able to
move in one direction or another. The ease with which an
issue moves is a product of a ratio between the height
(trading range) and width (volume) of the plotted box.
In general, a higher ratio results from a wider box and
indicates difficulty of movement. A lower ratio results
from a narrower box and indicates easier movement. This
ratio is then related to a comparison between today's
and yesterday's trading-range midpoint values to
determine the ease of movement value (EMV). A moving
average is then applied to the EMV value - the moving
average period can be varied in order to make the EMV
flexible as a trading tool.
Average True Range
True range is the greatest of the following
differences:
- Today's high to today's low
- Today's high to yesterday's close
- Today's low to yesterday's close
The range is normally the "high - low". However, any
time the value of yesterday's close is not within the
range of today's bar, rule b) or rule c) applies. As
with most other indicators, the periodic value is summed
and smoothed to create the final indicator.
Bollinger Bands
Bollinger Bands plot trading bands above and below a
simple moving average. The standard deviation of closing
prices for a period equal to the moving average employed
is used to determine the band width. This causes the
bands to tighten in quiet markets and loosen in volatile
markets. The bands can be used to determine overbought
and oversold levels, locate reversal areas, project
targets for market moves, and determine appropriate stop
levels. The bands are used in conjunction with
indicators such as RSI, MACD histogram, CCI and Rate of
Change. Divergences between Bollinger bands and other
indicators show potential action points. As a general
guidline, look for buying opportunities when prices are
in the lower band, and selling opportunities when the
price activity is in the upper band.
Candlestick Charts
Method of drawing stock (or commodity) charts which
originated in Japan. Requires the presence of Open,
High, Low and Close price data to be drawn. There are
two basic types of candels, the white body and the black
body. As with regular bar charts, a vertical line is
used to indicate the periods (normally daily) high to
low. When prices close higher than they opened a white
rectangle is drawn on top of the high-low line. This
rectangle originates at the opening price level and
extends up towards the closing price. A down day is
drawn in black. The combination of several candles
results in patterns (with names like "two crows" or
"bullish englufing patern") which give insight into
future price activity. For other Japanese charting
approaches also see Renko and Kagi charts.
Chaikin Oscillator
The Chaikin Oscillator is created by subtracting a 10
period exponential moving average of the
Accumulation/Distribution line from a 3 period moving
average of the Accumulation/Distribution Line.
Commodity Channel Index (CCI)
The CCI is a timing system that is best applied to
commodity contracts which have cyclical or seasonal
tendencies. CCI does not determine the length of cycles
- it is designed to detect when such cycles begin and
end through the use of a statistical analysis which
incorporates a moving average and a divisor reflecting
both the possible and actual trading ranges. Although
developed primarily for commodities, the CCI could
conceivably be used to analyze stocks as well.
Forumla: CCI=(M-MAVG)/(0.015xDAVG)
M=1/3 (H+L+C) H=Highest price for a period L=Lowest
price for a period C=Closing price for a period MAVG=N-period
simple moving average of M DAVG= 1/n x SUMi=1 to n (ABS(MI-MAVG))
Commodity Selection Index
The Commodity Selection Index is related to the
Directional Movement Index. Whereas the ADXR plot of the
DMI is used to rate contracts from the longer term,
trend-following point of view, the CSI is used to rate
items in the more volatile short term. The Commodity
Selection Index takes into account the ADXR from the
Directional Movement Index, the Average True Range, the
value of a one cent move as well as margin and
commission requirements. The higher the CSI rating, the
more attractive an item is for trading.
Cutler's RSI
Cutler's RSI is a slight variation of Welles Wilder's
original Relative Strength Index. The RSI is a momentum
oscillator used to identify overbought and oversold
conditions by keying on specific levels, generally 30
and 70, on a chart scaled from 0 to 100. The study can
also be used to detect the following:
- Movement which might not be as readily apparent on
the bar chart
- Failure swings above 70 or below 30 which indicate
reversals
- Support and resistance
- Divergences between RSI and price
Cutler's RSI is calculated as follows:
- RSI = 100 - (100 / ( 1 + RS ) )
-
- RS = UPAV:x / DNAV:x, and . . .
- UPAV:x = (E, period's Closes UP) / period
- DNAV:x = (z: period's Closes DOWN) / period
- A Close UP (or DOWN) = CLOSE - CLOSE previous
If the difference is positive, it is a Close UP. If
the difference is negative, the sign is changed and it
is a Close DOWN.
Demand Aggregate
The Demand Aggregate is used similarly as the Demand
Index but adds Open Interest as a consideration in the
formula. In its simplest terms, the system confirms
price trends by analyzing concurrent Volume and Open
Interest trends. For example, a rise in price, coupled
with rising Volume and Open Interest figures, is
considered a bullish indicator. Interpretations are made
with respect to the relationship between the movement of
Volume, Open Interest, and Price.
Demand Index
The Demand Index is a leading indicator which
combines volume and price data in such a way as to
indicate a change in price trend. It is designed so that
at the very least it is a coincidental indicator, never
a lagging one. The calculation of this index is
relatively complex. This analysis is based on the
general observation that volume tends to peak before
prices peak, both in the commodity and stock markets.
Detrend
Detrend is simply another interpretation of a moving
average. It provides a means of identifying underlying
cycles not apparent when the moving average is viewed in
its original form by effectively hiding the major cycles
from view. The moving average line is drawn as a
straight, horizontal basis line on the Detrend chart.
Price bars are then re-positioned along this line
depending on their relation to the moving average line.
Directional Movement Index
Directional Movement uses a rather complicated set of
calculations designed to rate the directional movement
of commodities or stocks on a scale from 0 to 100. For
those traders who employ trend-following methods,
commodities or stocks rating in the upper end of the
scale would be attractive. Those using non-trending
methods, commodities or stocks rating at the lower end
of the scale should be considered for trading. At its
most basic, the Directional Movement would affect
trading in the following manner: Long positions would be
taken when the "+DI" line crosses over the "-DI" line.
Short positions would be taken when the "-DI" line
crosses over the "+DI" line. Further components of this
index are the ADX and ADXR lines.
Elliott Wave
Elliott wave theory goes beyond traditional charting
techniques by providing an overall view of market
movement that helps explain why and where certain chart
patterns develop. The three major aspects of wave
analysis are pattern, time and ratio. The basic Elliott
pattern consits of a 5 wave uptrend followed by a three
wave correction. Each "leg" of a wave in turn consists
of smaller waves. Elliott waves can be used to
successfully define where the market currently is in
relation to "the big picture" but is usually to
unreliable for short term trading.
Fibonacci Ratios and Retracements
They can be applied both to price and time, although
it is more common to use them on prices. The most common
levels used in retracement analysis are 61.8%, 38% and
50%. When a move starts to reverse the 3 price levels
are calculated (and drawn using horizontal lines) using
a movements low to high. These retracement levels are
then interpreted as likely levels where counter moves
will stop. It is interesting to note that the Fibonacci
ratios were also known to Greek and Egyptian
mathematicians.The ratio was known as the Golden Mean
and was applied in music and architecture. A Fibonacci
spiral is a logarithmic spiral that tracks natural
growth patterns.
Gann Square
The Gann Square is a mathematical system for finding
support and resistance based upon a commodity or stock's
extreme low or high price for a given period. Attainment
of a particular price level in a square tells you the
next probable price peak or valley of future movement.
The probable price levels tend to be more reliable if
they are extrapolated from Gann Square values along one
of the major axes of the Gann Square. The Gann Square is
generated from a central value, normally a all-time or
cyclical high or low. If a low is used, the numbers are
incremented by a constant amount to generate the Gann
Square. If a high is used, the numbers are decremented
during the square generation.
Haurlan Index
This indicator is calculated daily from the plurality
of NYSE advances over declines. There are three
components of the Haurlan index: Short Term, Long Term
and Intermediate Term.
1) Short Term. A 3-day exponential moving average is
taken of the net NYSE advances over declines, measuring
the short term condition of the market. When this index
moves above +100, a market short term buy signal is
generated. The signal is in effect until the market
drops below -150 at which time a sell signal is
generated. The sell signal remains in effect until the
index moves above +100 again.
2) Intermediate Term. Same as above but with a 20-day
exponential moving average. This index is considered the
most important of the three. Market buys and sells are
determined in this index by the crossing of trend lines
or support/resistance levels depending on the particular
market in question. For example, when the market is
basing out in preparation for an uptrend, a resistance
level may be set up. Once its value is determined, buy
and sell signals could be generated for that market.
3) Long Term. Same as above except for a 200-day
exponential moving average. Useful for determining
trends but not for signals.
Also can be inverted.
A reversal pattern that is one of the more common and
reliable patterns. It is comprised of a rally which ends
a fairly extensive advance. It is followed by a reaction
on less volume. This is the left shoulder. The head is
comprised of a rally up on high volume exceeding the
price of the previous rally. And the head is comprised
of a reaction down to the previous bottom on light
volume. The right shoulder is comprised of a rally up
which fails to exceed the height of the head. It is then
followed by a reaction down. this last reaction down
should break a horizontal line drawn along the bottoms
of the previous lows from the left shoulder and head.
This is the point in which the major decline begins. The
major difference between a head and shoulder top and
bottom is that the bottom should have a large burst of
activity on the breakout.
Herrick Payoff Index
This is a commodity trading tool, useful for the
early spotting of changes in price trend direction. The
Payoff Index is best used to distinguish trends that are
destined to continue from those that will most likely be
short-lived. The Payoff Index is a commodity trading
tool that is useful in the early identification of
changes in the direction of price trends. The Payoff
Index frequently helps distinguish between a rally in a
trend that is destined to continue and a significant
trend change that will provide a worthwhile trading
opportunity. The Payoff Index tends to give coincident
signals within a day or two before a significant change
in price trend. This advance action is accomplished
through use of trading volume and contract open interest
to modify the price action. Analysts have observed that
volume trends often change before a price-trend change.
There are also generally accepted relationships between
the price trend and the trend of open interest.
Kagi Chart
Like Candlestick and Renko charts, Kagi charts come
from Japan and were made popular in the USA by Steve
Nison. Kagi charts display a series of connecting
vertical lines where the thickness and direction of the
lines are dependent on the price action. If closing
prices continue to move in the direction of the prior
vertical Kagi line, then that line is extended. However,
if the closing price reverses by a pre-determined
"reversal" amount, a new Kagi line is drawn in the next
column in the opposite direction. An interesting aspect
of the Kagi chart is that when closing prices penetrate
the prior column's high or low, the thickness of the
Kagi line changes.
MACD (Moving Average Convergence/Divergence)
The MACD is used to determine overbought or oversold
conditions in the market. Written for stocks and stock
indices, MACD can be used for commodities as well. The
MACD line is the difference between the long and short
exponential moving averages of the chosen item. The
signal line is an exponential moving average of the MACD
line. Signals are generated by the relationship of the
two lines. As with RSI and Stochastics, divergences
between the MACD and prices may indicate an upcoming
trend reversal.
McClellan Oscillator
This index is based on New York Stock Exchange net
advances over declines. It provides a measure of such
conditions as overbought/oversold and market direction
on a short-to- intermediateterm basis. The McClellan
Oscillator measures a bear market selling climax when it
registers a very negative reading in the vicinity of
-150. A sharp buying pulse in the market would be
indicated by a very positive reading, well above 100.
Momentum
Momentum provides an analysis of changes in prices
(as opposed to changes in price levels). Changes in the
rate of ascent or descent are plotted. The Momentum line
is graphed positive or negative to a straight line
representing time. The position of the time- line is
determined by price at the beginning of the Momentum
period. Traders use this analysis to determine
overbought and oversold conditions. When a maximum
positive point is reached, the market is said to be
overbought and a downward reaction is imminent. When a
maximum negative point is reached, the market is said to
be oversold and an upward reaction is indicated.
Moving Averages
The moving average is probably the best known, and
most versatile, indicator in the analysts tool chest. It
can be used with the price of your choice (highs, closes
or whatever) and can also be applied to other
indicators, helping to smooth out volatility. As the
name implies, the Moving Average is the average of a
given amount of data. For example, a 14 day average of
closing prices is calculated by adding the last 14
closes and dividing by 14. The result is noted on a
chart. The next day the same calculations are performed
with the new result being connected (using a solid or
dotted line) to yesterday’s. And so forth. Variations of
the basic Moving Average are the Weighted and
Exponential moving averages.
Norton High/Low Indicator
The Norton High/Low Indicator uses results from the
Demand Index and the Stochastic study and is designed to
pick tops and bottoms on long term price charts. Two
lines are generated: the NLP line and the NHP line. The
system also uses level lines at -2 and -3. The NLP line
crossing -3 to the downside is the signal that a new
bottom will occur in 4-6 periods, using daily, weekly,
or mnthly data. Similarly, the NHP line crossing -3 to
the downside indicates a new top in the same time frame.
The indicator tends to be more reliable using longer
term data (weekly or monthly). When either indicator
drops below the - 3 level, a reversal may be imminent.
The reversal (or hook) is the signal to enter the
market. For greater reliability, use the Norton High/Low
Indicator together with other studies for confirmation.
Notis %V
A way to measure volatility is to measure the daily
ranges between the high and the low. Volatility is high
when the daily range is large and low when the daily
range is small. The Notis %V study contains two separate
indicators. It divides market volatility into upward and
downward components (UVLT and DVLT). Both are plotted
separately in the same window, and can be plotted as an
oscillator. The upward component is also compared to the
total volatility (UVLT + DVLT) and expressed as a
percentage; thus the name, %V. Volatility can be a key
to options trading. A good sense of market volatility
can help you avoid those frustrating times when the
market moves your way but your option still loses value.
On Balance Volume (OBV)
OBV is one of the most popular volume indicators and
was developed by Joseph Granville. Constructing an OBV
line is very simple: The total volume for each day is
assigned a positive or negative value depending on
whether prices closed higher or lower that day. A higher
close results in the volume for that day to get a
positive value, while a lower close results in negative
value. A running total is kept by adding or subtracting
each day's volume based on the direction of the close.
The direction of the OBV line is the thing to watch, not
the actual volume numbers.
Formula: OBV=SUM(C-CP)/(ABS(C-CP)xV)
C=Today's Close CP=Yesterday's Close V=Today's Volume
Parabolic (SAR)
The Parabolic is a Time/Price system for the
automatic setting of stops. The stop is both a function
of price and of time. The system allows a few days for
market reaction after a trade is initiated after which
stops begin to move in more rapid incremental daily
amounts in the direction the trade was initiated. For
example, when a long position is taken the stop will
move up regardless of price direction. However, the
distance that the stop moves up is determined by the
favorable distance the price has moved. If the price
fails to move favorably within a certain period of time,
the stop reverses the position and begins a new time
period.
Point & Figure Charts
The Point and Figure (PF) charting method is a
technique that has been used for many years in analyzing
the variations in prices of stocks and commodities.
There are several types of PF charting methods. Some
employ trend lines, resistance levels, and various other
additions to the chart. In this study, we shall be
concerned with only daily reversal type charts. The
principal advantage of a PF chart is that it is much
easier to read and interpret than other types of charts.
All the small, and often confusing, price movements are
eliminated, and only the most important features of the
price action remain. It would be reasonable to think of
this method as a filter that (hopefully) allows only
meaningful information to enter the chart and ultimately
the decision process. Two basic symbols are used:
X Denotes the continuance of an increase in
price and is always "stacked" in the vertical direction.
O Denotes the continuance of a decrease in
price and is always "stacked" in the vertical direction.
While prices are rising X's are used. When falling,
O's are used. They are always plotted on rectangular
grid graph paper such that columns of X's and O's
alternate. A Point and Figure chart is characterized by
the specification of two parameters: box size and
reversal number. The box size dictates the price range
associated with a particular box (cubical area within
the grid), while the reversal number specifies the
conditions which terminate a column of X's and begin a
column of O's and vice-versa.
Price Patterns
Price Patterns are formations which appear on
commodity and stock charts which have shown to have a
certain degree of predictive value. Some of the most
common patterns include: Head & Shoulders (bearish),
Inverse Head & Shoulders (bullish), Double Top
(bearish), Double Bottom (bullish), Triangles, Flags and
Pennants (can be bullish or bearish depending on the
prevailing trend).
Randow Walk Index
This indicator is defined as the ratio of an acutal
price move to the expected random walk. If the move is
greater than a random walk, and thus a trend is present,
its index will be larger that 1.0
Rate of Change
Rate of Change is used to monitor momentum by making
direct comparisons between current and past prices on a
continual basis. The results can be used to determine
the strength of price trends. Note: This study is the
same as the Momentum except that Momentum uses
subtraction in its calculations while Rate of Change
uses division. The resulting lines of these two studies
operated over the same data will look exactly the same -
only the scale values will differ.
RSI - Relative Strength Index
This indicator was developed by Welles Wilder Jr.
Relative Strength is often used to identify price tops
and bottoms by keying on specific levels (usually "30"
and "70") on the RSI chart which is scaled from from
0-100. The study is also useful to detect the following:
- Movement which might not be as readily apparent on
the bar chart
- Failure swings above 70 or below 30 which can warn
of coming reversals
- Support and resistance levels
- Divergence between the RSI and price which is
often a useful reversal indicator
The Relative Strength Index requires a certain amount
of lead-up time in order to operate successfully.The
formula for calculating the RSI is:
- rsi=100-(100/1-rs)
- rs= average of x day’s up closes divided by
average of x day’s down closes
Renko Chart
The Renko charting method probably got its name from
"renga", which is the Japanese word for bricks.
Introduced by Steve Nison, a well-known authority on the
Candlestick charting method, Renko charts are similar to
Three Line Break charts except that in a Renko chart, a
line is drawn in the direction of the prior move only if
a fixed amount (i.e., the box size) has been exceeded.
The bricks are always equal in size. Example: With a
five unit Renko chart, a 20 point rally is displayed as
four equally sized, five unit high Renko bricks.
Stochastic
The Stochastic Indicator is based on the observation
that as prices increase, closing prices tend to
accumulate ever closer to the highs for the period.
Conversely, as prices decrease, closing prices tend to
accumulate ever closer to the lows for the period.
Trading decisions are made with respect to divergence
between % of "D" (one of the two lines generated by the
study) and the item's price. For example, when a
commodity or stock makes a high, reacts, and
subsequently moves to a higher high while corresponding
peaks on the % of "D" line make a high and then a lower
high, a bearish divergence is indicated. When a
commodity or stock has established a new low, reacts,
and moves to a lower low while the corresponding low
points on the % of "D" line make a low and then a higher
low, a bullish divergence is indicated. Traders act upon
this divergence when the other line generated by the
study (K) crosses on the right-hand side of the peak of
the % of "D" line in the case of a top, or on the
right-hand side of the low point of the % of "D" line in
the case of a bottom. Two variations of the Stochastic
Indicator are in use: Regular and Slow. When the Regular
plot of the Stochastic too choppy, the "Slow" version
can often clarify the results by reducing the
sensitivity of the calculations. The formula is:
Note: 5 Days is the most commonly used value for %K
%K=100 {(C-L5)/(H5-L5)}
The %D line is a 3 day smoothed version of the %K
line
%D=100(H3/L3) where H3 is the 3 day sum of (C-L5) and L3
is the 3 day sum of (H5-L5)
Stoller STARC Bands
STARC bands create a channel surrounding a simple
moving average. The width of the created channel varies
with a period of the average range; thus the name ('ST'
for Stoller, plus 'ARC' for Average Range Channel).
STARC Bands, in a fashion similar to Bollinger Bands,
will tighten in steady markets and loosen in volatile
markets. However, rather than being based on closes, the
STARC Bands are based on the average true range, thus
giving a more in depth picture of the market volatility.
While the penetration of a Bollinger Band may indicate a
continuation of a price move, the STARC Bands define
upper and lower limits for normal price action.
Swing Index
The Swing Index (primarily for use with commodity
trading) attempts to determine real market direction,
and changes in direction, by making use of the most
significant comparisons between the results
(Open-High-Low-Close) of the current and previous days'
trading.
Time Cycles
Some analysts believe that price analysis alone only
offers half the information needed for successful
trading. The other part is time, more exactly time
cycles, which give actual insight into understanding the
movements of markets. Common cycles are the seasonal
cycles apparent in many commodity markets, but cylces
can be detected on intra-day charts as well.
Trading Index
This index (also kown as the "Arms" index, or "TRIN")
measures the relative strength of volume associated with
advancing stocks against the strength of volume
associated with declining stocks. When used as a short
term indicator, readings below 1.0 are considered
bullish while readings above 1.0 are considered bearish.
An extreme bearish reading would be 1.5 or higher; an
extreme bullish reading would be .5 and lower. Readings
of 2.0 or .3 would be considered "climactic". For the
intermediate term, a bearish sign is an index over 1.0,
bullish under 1.0. For the long term, the Trading Index
can be viewed as an overbought / oversold indicator.
Trix
Single linear exponential smoothing was developed in
the early 1950s as a means of prediction along a
straight line whose slope was based on previous data.
The Triple Exponential Smoothing Oscillator (Trix) has
now been developed to act on trends of a higher order
than linear. Trix uses a one-day momentum of a triple
exponential smoothed price series to produce an
indicator which is cycle dependent. Changes in the Trix
direction are less prone to whipsaws than standard
cycle-momentum indicators. The period is chosen to
filter out any insignificant cycles shorter than the
period. Fourier Analysis or visual observation may be
used to find the proper cycle length of a given market.
Raising the number of days will remove more small cycles
and smooth out the oscillator, but at the loss of
sensitivity. The more smoothing that is applied to the
data, the more of a lag in the oscillator, but not
nearly the lag of a normal moving average.
Volume Accumulation
This volume indicator addresses some of On Balance
Volume's shortcomings and was developed by Marc Chaikin.
Where OBV assigns all of a day's volume a positive or
negative value, Volume Accumulation counts only a
percentage of the volume as positive or negative,
depending on where the close is in relation to the
average price of the day. The only time the entire day's
volume is assigned a positive value is when the close is
the same as the day's high. The opposite applies for a
close at the day's low.
Volatility
This analysis is based on the idea that stocks bottom
from "panic" selling, after which a rebound is imminent.
One way of measuring this phenomenon is to observe a
widening range between high and low prices each day. In
general a progressively wider range, observed over a
relatively short period of time, can indicate that a
bottom is near. Price tops are generally reached at a
more leisurely pace and can be characterized by a
narrowing of the price range. This measure of the
trading range takes place over a specified period in
order to determine whether or not an issue is being
"dumped" and is approaching a bottom. A pre-requisite to
a valid bottom is an increase in the volatility line
above the reference line. In a similar manner, an
indication of an imminent top would be a decrease in the
volatility line below the reference line. As long as
volatility is rising, in all probability a stock will
not approach a top. It should be noted that this study
should be used in conjunction with trend following
analyses and momentum oscillators for confirmation and
accuracy. |
