--- SHORT INTRODUCTION ---
- Momentum Indicators works better in non-trending markets, while Trend Indicators works better in trending market.
- Trending or trading market can be determine by ADX, or whether price constantly passes through moving averages (-> trading market)
- Parameters of the indicators can be tweak to make it work better in the market it is in.
- Use at least 3 different TYPES of indicators to confirm each other's signals, eg. Volume based + Price based + Sentiment based
- I have attempt to group the indicators into different types to the best of my abilities, but may not be accurate.
- Constance Brown, author of All About Technical Analysis, divided technical indicators into 4 categories ->
1. Pattern Recognition -eg. candlesticks, triangles etc
2. Geometric Mathematical Relationships within Price Data or Indicators -eg. trending tools, cycle analysis, Fibonacci Ratios, Gann analysis etc
3. Based on Behavioral Traits and Extremes of Market Participants -eg. Elliot Wave, put/call option analysis, commitment of traders analysis etc
4. Correlations Between Markets -eg. intermarket and intramarket analysis - stock index futures
--- MOMENTUM INDICATORS ---
Stochastics Oscillator
- calculate closing price relative to range
- %K line - Main Line
- %D line - Moving Average of %K line
- Buy when lines move below 20 (oversold) andhook up (safe: to cross 20 again).
- Sell when lines move above 80 (overbought) and hook down (safe: to cross 80 again).
- Buy when %K rise above %D
- Sell when %K descend below %D
- Buy when stochastics move higher but price go lower
- Sell when stochastics move lower but price go higher
William %R
- same as Stochastic
Relative Strength Index (RSI)
- similar to Stochastic, just that RSI calculate closing price relative to prev closing price
- need to tweak to make it more accurate
- in bear market - range is ard 60 and 40
- in bull market - range is ard 85 to 45
--- TREND INDICATORS ---
Moving Average
-lagging indicator ->use to confirm trend
-Price trade above 20-day -> weak uptrend
-Price trad above 20-day and 50-day MA + 20 day MA above 50-day MA -> strong uptrend
-Price trade below 20-day and 50-day MA + 50 day MA above 20-day MA -> strong downtrend
-During uptrend, 20-day MA moves up and cross over 50-day MA ->BULLISH
MACD
- trend following (lagging) indicator -> slow
- MACD line above signal line (difference is shown on a bar chart) -> uptrend
- buy/sell signal -> MACD line crosses signal line
Commodity Channel Index
- Short term
- Buy long when indicator breaks above +100 and sell when it break back below +100
- Sell short when indicator fall below -100 and coverl when it break back above -100
- Longer term
- Buy long when indicator breaks above -100 and sell when it break back below +100
Bollinger Bands (BB)
- Volatility based
- sharp moves tend to occur after the Bands tightens (reduced volatility -> consolidation)
- first increase in volatility after a consolidation tend to mark the start of the next move
- moves starting at one Band tend to move to the opposite Band before reversing
- Rallies and reaction that take prices temp outside the Bands usually are assocaited with trend reversals (exhaustion)
Average Directional Index (ADX)
- Buy when +DI rises above -DI
- Sell when +DI crosses below -DI
- ADX above 30 -> up or down trend is developing
- ADX below 30 -> no trend
- Buy when ADX slices above 30 and move higher with +DI and -DI head south
- Sell when ADX slices above 30 and move higher with -DI and +DI head south
Ichimoku Kinko Hyo
- Tenkan Sen - shorter term
- Kijun Sen - baseline
- If the price stays above the cloud then there is an upward trend.
- If it stays below the cloud then there is a downward trend.
- If the price is within the cloud then the market is flat.
- If Tenkan-sen line moves sideways then it is a signal for a flat market.
- When the price exits the cloud downward it is a sell signal, upward is buy signal
- If Tenkan-sen crosses Kijun-sen from above it is a sell signal, and vice versa
- Kijun-sen and cloud edges are very strong resistance/support levels
--- VOLUME BASED INDICATORS ---
Volume
-Volume should confirm price movements, eg. breakout to upside on strong volume
-If NOT, non confirmation alerts us that the price action may FAIL
-Low-to-average volume + pullback in uptrend ->BULLISH
-High volume + pullback in uptrend ->BEARISH
-New high + weak volume ->BEARISH
-Soaring price + explosive volume ->BEARISH (overbought)
-Huge selling + high volume -> tradable bottom (oversold)
-Important low + steady volume for days -> BULLISH
On-Balance Volume Indicator (OBV)
-OBV usually follow price
-buy/sell signal -> OBV diverge from price
-OBV positive -> OBV tick up or going up
-esp meaningful if coincide with MACD/Stochastic etc
Price Volume Trend
- Trading signals same as OBV
Volume Accumulation/Distribution (V-A/D)
- close nearer to high, larger percentage of volume added (accumulation)
- close nearer to low, larger percentage of volume added (distribution)
- buy -> line turns from down to up
- sell -> line turns from up to down
- divergence from price
Money Flow
- derived from V-A/D
- signals same as Stochastics (overbought above 80 and oversold below 20)
- tweak the period to get more accurate signals
--- MARKET INDICATORS ---
Stock Index Futures
- Very short term leading indicator
- ESSENTIAL for intraday trading
Stock Index
- Stocks will normally follow its index
- Look out for stocks diverge from its index by alot
--- SENTIMENT INDICATORS ---
Put/Call Ratio
- work best in trending market
- one day's reading is not accurate
- above 1.00 -> Oversold
- above 0.60 -> Bearish
- below 0.50 -> Bullish
- below 0.40 -> Overbought
Volatility Index (VIX)
- VIX of 15% means options traders thinks S&P to move in 15% range over the next 12 mths
- VIX and S&P Index tend to move in opposite directions
- below 20 -> Overbought
- above 40 -> Oversold
VXN
- same as above, but for NASDAQ
- Momentum Indicators works better in non-trending markets, while Trend Indicators works better in trending market.
- Parameters of the indicators can be tweak to make it work better in the market it is in.
- Use different types of indicators to confirm each other's signals
Tick
- number of stocks ticking up minus number of stock ticking down
- extremely short term indicator
- +1100 -> overbought
- -1000 -> oversold
- use in conjunction with Futures Chart
Trin
- 0.5 to 1.0 -> favours long position
- above 1.2 -> oversold
- above 0.5 -> overbought
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