Archive for July, 2008:
Metatrader Indicators: Ichimoku Kinko Hyo
Ichimoku Kinko Hyo technical indicator is predefined to generate signals of buying and selling and to distinguish the resistance levels, market support, and market trends. This technical indicator works best at daily charts and on weekly basis.
Four time intervals of different lengths are used to define the dimensions of parameters. Composing this technical indicator the values of individual lines are based on these intervals:
- Tenken-sen shows that the average price value during the first time interval is defined as the sum of minimum and maximum within the given time and divides by 2.
- Kijun-sen shows the average price value during the second time interval.
- Senkou Span A shows that the middle of the distance between the two previous lines has been shifted forwards by the value of the second time interval.
- Senkou Span B shows that the average price value during the third time interval has been shifted forward by the value of the second time interval.
Chinkou Span shows that the closing price of the current candle has been shifted towards the back by the value of the second time interval. The distance between the Senkou lines is formulated with another color and this is known as cloud. If the price is between these lines, the cloud margins form the resistance and support levels and then the market should be considered as non-trend.
- If the price is above the cloud, the first support level forms as its upper line, and the second support level forms as its second line.
- If the price is below the cloud, the first resistance level forms the lower line, and the second level forms as the upper one.
- If the Chinkou Span line passes through the price chart in the bottom-up direction then it’s the signal to buy. If the Chinkou Span line passes through the price chart in the top-down direction then it’s the signal to sell.
The technical indicator of the market movement is the Kijun-sen. If the price is above the indicator, than the prices will probably continue to increase, when the price passes through this line the trend, more changes in the trend are possible.
Another kind of giving signals is using the Kijun-sen. When the buy signal is generated then the Tenkan-sen like pass through the Kijun-sen is in the bottom-up direction. The signal to sell is the top-down direction.
The technical indicator of the market trend is the Tenkan-sen. If this Tenken-sen line decreases or increases, the trend exists. When it’s straight, it indicates that the market has come into the channel.
Metatrader Indicators: Moving Average (MA)
The MA or Moving Average is a form of technical indicator which depicts the price value over a given period of time. The average of the price for certain period of time is better known as the Moving Average (MA).
Moving averages are of four types:
- Simple or Arithmetic Moving Average.
- Exponential Moving Average.
- Smoothed Moving Average.
- Linear Weighted.
Moving Average can be calculated for a given set of sequential data like that of starting prices and ending prices, peak prices and bottom prices, volume of trading and many such other indicators. This happens quite often with the use of moving averages twice.
The single point of divergence between the moving averages is that when the weight coefficients given to the current data differ from each other. When we are discussing SMA, all the prices of that given period of time have equal value. Exponential MA as well as Linear Weighted MA gives added importance to the current prices.
There is a very common method of interpretation of the price MA. It is done by evaluating the difference between the dynamics and the action of price. The buying signal appears with the rise in price, much higher than its moving average and with the fall in price, much lower than its moving average it is the time to sell.
The method of trading based on moving average does not intend to allow way inside the market when it is at its lowest, and way out when the market is at its peak. It permits the trend which says it is best to buy when the prices are the lowest and sell off when the prices are at its highest.
These can be used as an application for indicators. This is the point of similarity between the indicator and MA, as their interpretation is the same. It means that if there is a rise in the indicator higher than the moving average, it is assumed that the rising movement of the indicator will continue and if the indicator slips down, much lower than the moving average it is assumed that it will go even lower.
Calculation:
Simple or Arithmetic Moving Average (SMA)
Summation of the instrument closure prices over N number of particular periods is the Simple moving average (SMA). The result is further divided by N number of similar period.
sma=total (closure, N)/N
Where, N stand for the total periods calculated.
EMA or Exponential Moving Average
The calculation of Exponentially moving average is done by summing up the MA of a particular portion of the latest concluding price to that of the earlier value. With EMA the current prices have more value.
EMA= {closure (i)*p} + {EMA (i-1)*(100-p)}
Where:
Closure (i) stands for the current closing period
EMA (i-1) stands for EMA of earlier closing period
p stands for the percentage of price value usage
SMMA or Smoothed Moving Average
Calculating the initial value of SMMA is the same as SMA.
S1=S (closure, n)
SMMA=S1/n
The next step of calculation is done using the following method:
SMMA (i) = (S1-SMMA+closure (i))/n
Where:
S1 stands for the sum total of price closure for certain (n) periods;
SMMA stands for first smoothed moving average;
SMMA (i) stands for current smoothed moving average (leaving aside the first one);
closure (i) stands for the present price closure;
n stands for period of smoothing.
LMWA or Linear Weighted Moving Average
In this method, more importance is given to the current data than the earlier data. The calculation is done by multiplying every price closure within the stated sequence, by a particular weight coefficient.
LWMA=S (Close (i)*i,n)/SUM(i,n)
Where, S (i,n) stands for the sum total of coefficients of weight..
MACD is another form of a dynamic indicator that follows a particular trend. It states that two moving averages are inter related.
The MACD technical indicator is basically the divergence between two particular moving averages, the one whish has 26 periods and the other has 12 periods of Exponential Moving Average. While predicting the buying and selling opportunities a line of signal is used. It is usually a moving average indicator showing 9 periods. Then it is plotted on MACD chart.
The MACD has been regarded as the most efficient one in case of greater fluctuations in the trade market. There are 3 major ways of using MACD:
Crossovers
MACD follows a general rule of trading which says that when the it is the best to sell off when the MACD is at the bottom of the line of signal. In the same way, the best time to buy is when the MACD is above its line of signal. It is preferred to either buy or sell when the MACD is greater than or less than zero.
Conditions of overbought and oversold
MACD is used as over bought and oversold indicator. As the lesser moving average shifts away from the higher moving average, which indicates a rise in MACD, it is assumed that the price of security is going overboard and will slip down to its practical level very soon.
Divergence
With the divergence of MACD from security it is predictable that the present trend is about to come to an end. When MACD reaches new highs which the price cannot meet, then it is noted as bullish MACD. Whereas, when the MACD reaches its new lows and price cannot follow the same it is known as bearish divergence. The divergences are both significant when it takes place at overbought and oversold situations.
MACD calculation:
The value of difference between moving averages of 26 periods and 12 periods respectively results in the MACD. Then a simple moving average of 9 periods is plotted on the MACD chart in the dorm of dotted lone.
MACD = EMA (CLOSE, 12)-EMA (CLOSE, 26)
SIGNAL = SMA (MACD, 9)
Where
EMA stands for Exponential Moving Average;
SMA stands for Simple Moving Average;
SIGNAL stands for signal line of the indicator.
OsMA or Moving Average of Oscillator
The subtracted value of the oscillator from the oscillator smoothing is the value of Moving average of the oscillator. Here the oscillator is denoted by the MACD base line and smoothing is denoted by the MACD line of signal.
OsMA=MACD- line of signal
Metatrader Indicators: Money Flow Index
Money Flow Index or MFI is another technical indicator used to indicate the rate, based on which money is invested into securities and withdrawn from the same. Volume is of great importance for MFI and that makes it different from Relative Strength Index, or else both follow the same procedure of construction and analysis.
The following points must be considered while you are analyzing MFI:
Whether the movement of price is divergent from the indicator i.e.; with the rise in price the MFI slips down or vice versa. In such cases the price tends to turn.
Money Flow Index or MFI value is usually above 80 and below 20, which signifies the market’s probable rise or fall.
Calculation
The Money Flow Index is calculated in several stages. In the first stage we the typical price or TP of that particular period is defined.
TP= (HIGH+LOW+CLOSE)/3
The next stage involves calculation of the amount of Money Flow (MF)
MF=TP*VOLUME
If typical price (TP) today is greater from what it was previously, then it is noted as positive Money Flow (MF) .if typical price today is smaller than what it was previously, then it is noted as negative Money Flow.
The summation of positive flow of money for a certain time period is known as positive flow of money. The summation of negative flow of money for a certain time period is known as negative flow of money.
Calculation of the momey ratio (MR) is the next stage. The method involves division of positive money flow by negative money flow.
MR=Positive Money Flow (PMF)/ Negative Money Flow (NMF)
The final step is the calculation of the MFI or Money Flow Index, which is done by using money ratio.
MFI= 100-(100/(1+ MR))
Metatrader Indicators: Market Facilitation Index – BW MFI
The market facilitation index (MFI), is created by Bill Williams, and attempts to determine the efficiency of price movement by quantifying the price movement per unit of volume. This is done by taking the day’s range high minus low and dividing it by the total volume.
- When the market facilitation index increases and volume increases:
a) The number of players coming into the market as well as volume increases.
b) Once there is a movement and its pick up has happened to speed things up, therefore as the new players start to open positions, the direction of bar then begins to develop.
- When the market facilitation index and volume decreases, this means that the market participants are not interested any more.
- When the market facilitation index increases its volume decreases. This means that it’s most likely that the market is not supported with the volume from clients and the price is changing due to traders’ that is dealers and brokers on the floor speculations.
- When the market facilitation index decreases, the volume also increases then there is a clash between bulls and bears. These are characterized by a large sell and buy volume, but the no considerable change in the price, since the forces are equal. Any one of the contending parties that is buyers or sellers will eventually win the battle. The break of such a bar lets you know that if this bar determines the trend annuls or the continuation of the trend, such bar is known as curtsying and Bill Williams was the person to name it.
Calculation
For calculating the MFI, you need to minus the lowest bar price from the highest bar price and then divide it by the volume. The formula is to find out BW MFI as follows:
BW MFI =Range x (High - Low)/Volume
Metatrader Indicators: Momentum
The change in the amount of security’s price in a given period of time is measured by the Momentum Technical Indicator.
The Momentum Indicator can be used in two ways:
It functions almost like Moving Average Convergence/Divergence (MACD) which fluctuates according to situations. When the indicator goes down and then pops up, it is the ideal time to buy and sell off when the indicator is at its zenith and falls down. If you want to keep a track of the rise and fall you will have to plan a temporary moving average.
If a significant rise or fall is noticed as compared to its previous trend then it is assumed that the current state will last for sometime. If the momentum indicator is at its peak and then falls down then it clearly indicates that the prices are going even higher. It is suggested to wait for the prices to confirm the current state of affairs. Do not trade until you are too sure of the prices.
Momentum Indicator can also be used as primary indicator. The method follows a general rule which states that when the market shoots up it is evident that there is a price rise and everyone believes that the prices will go even higher and as the market falls there will be speedy rejections ad people will want to make their way out. This happens very often, but it is just an overview of the situation.
As the market reaches its highest point, the Momentum Indicator will rise up and then fall straight, deviating from the movement of the price. In the same way when the market falls off, the Momentum Indicator falls right down and then makes its way up. The results of both the cases are divergent from the prices and the indicator.
Calculations
The ratio of current price to the price N years ago is the Momentum.
MOMENTUM = CLOSE (i)/CLOSE (i-N)*100
Where:
CLOSE(i) — is the current bar’s closing price.
CLOSE(i-N) — is the price of closing bar N years ago..
Metatrader Indicators: OBV or ON BALANCE VOLUME
ON BALANCE VOLUME is another technical indicator which is used to relate the volume to the change in price. This indicator was brought in by Joseph Granville and is a very simple one. When security finishes off with a value that is higher than its previous closure then it is considered an up-volume for the whole of the day. When the situation is reversed i.e.: the present value of closure is lower than its previous value, then the situation termed as down-volume.
It is understood that the change in on balance volume is ahead of price changes. It is noted that with a rise in on balance volume there is an inflow of smart money.
A situation of “Non confirmation” occurs when the movement in price goes ahead of on balance volume movement. Non confirmation can happen during bullish markets (earlier rise in security than OBV) or bearish markets (earlier fall in security than OBV).
The rising trend of OBV is noted when there is every new growth reaches a mark above its previous growth and every new reduction is more than the previous reduction. In the same way the falling trend of OBV is noted when every high is lower tan its previous high and every low is lower than it previous low. If the movement of OBV is sideways with no significant growth or reduction, then the trend is said to be doubtful.
A trend once formed, cannot be altered until and unless it is broken. To break the trend of OBV , two ways have to be followed, the first being the change in trend from high to low or from low to high. The second way is if by any chance the trend becomes doubtful and stays as long as 3 days. Therefore, it can be noted that if the trend is doubtful and it lasts for 2 days and then shifts to a rising trend on the third day, it is assumed that the trend was ever rising.
Changes in OBV, from a rising to a falling trend might cause a “breakout”. As OBV breakouts tend to go ahead of price breakouts, it is better to buy when there is an upside OBV breakout and sell off when there is a downside OBV breakout. Investors must hold on to the position until there is a change in trend.
Calculation of OBV:
If closure today is larger than the closure yesterday - OBV(i) = OBV(i-1)+VOLUME(i)
If the closure today is smaller than the closure yesterday - OBV(i) = OBV(i-1)-VOLUME(i)
If both the closures are equal - OBV(i) = OBV(i-1)
Where:
OBV(i) stands for indicator value of today;
OBV(i-1) stands for indicator value of the previous day;
VOLUME(i) stands for the volume of the present bar.
Metatrader Indicators: OsMA
MACD – Moving Average Convergence and Divergence
MACD is another form of a dynamic indicator that follows a particular trend. It states that two moving averages are inter related.
The MACD technical indicator is basically the divergence between two particular moving averages, the one whish has 26 periods and the other has 12 periods of Exponential Moving Average. While predicting the buying and selling opportunities a line of signal is used. It is usually a moving average indicator showing 9 periods. Then it is plotted on MACD chart.
The MACD has been regarded as the most efficient one in case of greater fluctuations in the trade market. There are 3 major ways of using MACD:
Crossovers
MACD follows a general rule of trading which says that when the it is the best to sell off when the MACD is at the bottom of the line of signal. In the same way, the best time to buy is when the MACD is above its line of signal. It is preferred to either buy or sell when the MACD is greater than or less than zero.
Conditions of overbought and oversold
MACD is used as over bought and oversold indicator. As the lesser moving average shifts away from the higher moving average, which indicates a rise in MACD, it is assumed that the price of security is going overboard and will slip down to its practical level very soon.
Divergence
With the divergence of MACD from security it is predictable that the present trend is about to come to an end. When MACD reaches new highs which the price cannot meet, then it is noted as bullish MACD. Whereas, when the MACD reaches its new lows and price cannot follow the same it is known as bearish divergence. The divergences are both significant when it takes place at overbought and oversold situations.
MACD calculation:
The value of difference between moving averages of 26 periods and 12 periods respectively results in the MACD. Then a simple moving average of 9 periods is plotted on the MACD chart in the dorm of dotted lone.
MACD = EMA (CLOSE, 12)-EMA (CLOSE, 26)
SIGNAL = SMA (MACD, 9)
Where
EMA stands for Exponential Moving Average;
SMA stands for Simple Moving Average;
SIGNAL stands for signal line of the indicator.
OsMA or Moving Average of Oscillator
The subtracted value of the oscillator from the oscillator smoothing is the value of Moving average of the oscillator. Here the oscillator is denoted by the MACD base line and smoothing is denoted by the MACD line of signal.
OsMA=MACD- line of signal
Metatrader Indicators: Parabolic SAR
Parabolic SAR technical indicator has been developed to analyze the trending markets and this indicator has been constructed on the price chart. This indicator is same as the moving average technical indicator, with only the dissimilarity being that parabolic SAR moves with higher acceleration and it may change the position in terms of the price. In case of bull market, the indicator is below the prices and when it is bearish (down trend), it is above the prices.
Suppose if the price crosses parabolic SAR lines, further values are situated on the other side of the price the indicator turns. When such an indicator turn does take place, the minimum or the maximum price for the previous period would serve as the starting point. When the indicator makes a turn, the trend end gives a signal of its turn.
For providing exit points the parabolic SAR is an outstanding indicator. When the price sinks below the SAR line, long positions should be closed. When the price rises above the SAR line, the short positions should be closed. Frequently the case of the indicator serves as an irregular stop line.
If the price is above the SAR line i.e. if the long position is open, the parabolic SAR line will go upwards, and in short the length of the SAR line movement depends on the scale of the price movement.
Calculation
Sum of the value of the indicator on the previous bar and the acceleration factor multiplied by the difference of the highest and the lowest price for the previous period. The formula indicates as below:
SAR(i) = SAR(i-1)+ACCELERATION*(EPRICE(i-1)-SAR(i-1))
Note:
SAR(i-1) - indicates the value of the indicator on the previous bar.
ACCELERATION – indicates the acceleration factor.
EPRICE(i-1) – indicates the highest (lowest) price for the previous period (EPRICE =HIGH for long positions and EPRICE=LOW for short positions).
If the price of the current bar is higher than the previous bullish and vice versa the indicator value increases. At the same time the acceleration factor (ACCELERATION) will double, which would cause parabolic SAR and the price to come together. In other words, the faster the indicator approaches the price, the faster the price grows or sinks.
Metatrader Indicators: Relative Strength Index Technical Indicator - (RSI)
Of all the momentum oscillators currently in wide use, relative strength index technical indicator responds the best to basic technical analysis methods such as resistance, chart patterns, trend lines and support. Applying these methods to relative strength index technical indicator in conjunction with over bought or oversold levels and divergences can provide very valuable insight into market behavior.
Relative strength index technical indicator compares the relative strength of price gains on days that close above the previous days close to price losses on days that close below the previous day’s close.
The Relative strength index technical indicator can be constructed for any number of days that the technical analyst considers useful. Tops and bottom levels are usually drawn at 70 and 30. Some analysts attempt to optimize the number of days in the Relative strength index technical indicator calculation on a market by market basis or to vary the over bought and oversold levels to adjust for each market’s current trend and also to maintain a constant Relative strength index technical indicator with overbought and oversold levels at 70 and 30 for all markets.
The most a reliable relative strength index technical indicator, buy and sell signals usually occur after Relative strength index technical indicator falls to confirm a new low or a new high in prices. Bullish divergence between a lower bottom in prices and a higher bottom in Relative strength index sets up a potential buying opportunity, and bearish divergence between a higher top in prices and a lower top in Relative strength index technical indicator sets up a potential selling opportunity. When a trader identifies on the bullish or bearish, the Relative strength index technical indicator divergence, he or she should then focus his or her attention on the price action of the market itself and wait for prices to confirm the Relative strength index signal.
Calculator
The formula for relative strength index technical indicator is:
RSI = 100-[100/(1+ U/D)]
Where U is the average number of positive price changes and D is the average number of negative price changes.
Metatrader Indicators: Relative Vigor Index – RVI
The basic idea of the Relative vigor index technical indicator is that prices tend to close higher than they open in bull markets and tend to close lower than they open in down markets. The establishment of the vigor movement helps in showing the existing price at the end of the day. To normalize the index to the daily trading range, you need to change the price divided by the maximum range of prices for the day. For easy calculation simple moving average is used. The 10-period is the best period. To avoid possible ambiguity, you need to build a signal line, which is a 4-period weighted symmetrically average movement of relative vigor index values. The line of concurrence serves as a signal to buy or to sell.
Thus, the basic equation for the relative vigor index is as follows:
Where:
Open – indicates the opening price
High – indicates the maximum price
Low – indicates the minimum price
Close – indicates the closing price
Metatrader Indicators: Stochastic Oscillator
The stochastic oscillator technical indicator compares a security’s price closing level to its price range over a specific period of time. This indicator shows, that in an upwardly trending market, prices tend to close near their high, and during a downward trending market, prices tend to close near their low. As a downward trend matures, prices tend to close away from their low and as an upward trend matures, prices tend to close further away from their high. The stochastic oscillator technical indicator attempts to determine when prices start to cluster around their low of the day in an up-trending market and cluster around their high in a downtrend.
The way to interpret a stochastic oscillator technical indicator includes:
- When the oscillator is either %K or %D falls below a specific level and then rises above that level, then you buy.
- When the oscillator increases above the specific level and then falls below that level, then you sell.
- Look for divergences, where prices are making a series of stochastic oscillator technical indicator is falling to surpass its previous highs and where prices are making a series of new highs.
Stochastic oscillator technical indicator had two trend lines as follows:
· %K is a comparison, expressed as a percent, of the stock’s closing price to it is high and low for a specified time period and is known as fast line.
· %D is a 3-period is the moving average of the trend line %K and is known as slow line.
Stochastic oscillator technical indicator is tremendously important to understand the calculation of the %K trend line. The formula is below:
%K = (CLOSE-LOW (%K))/ (HIGH (%K)-LOW (%K))*100
Where:
CLOSE – indicates today’s closing price
LOW (%K) – indicates lowest low in %K periods
HIGH (%K) – indicates highest high in %K periods.
%D indicates the moving average and is calculated according to the formula:
%D = SMA (%K, N)
Where:
N – Indicates smoothing period
SMA – indicates the simple moving average
Metatrader Indicators: Williams’ Percent Range (%R)
Williams’ Percent Range Technical Indicator shows the position of today’s closing price within the range of prices for a time period. The indicator shows the percent the closing price has been retraced by, from the highest price during the period. When you look at a chart, the price range is the vertical distance between the highest at the lowest price that is a hypothetical price bar chart.
Today’s close price is nearer to the highest price for the period than to the lowest one, this means that the percent R value is closer to zero than 100%. Since the security’s closing price is at a high level relative to that of the previous prices in the period considered here, the William’s Percent Range Technical Indicator would be near, if not inside, the overbought area. As buying power is getting weaker, a sell signal would be generated when prices start falling. Usually prices fall a few days after the indicator moves closer towards zero.
On the other hand, the William’s Percent Range Technical Indicator takes a value near 100 when the closing price is the same with the lowest price for the period observed. Since the security’s close is at the low end of the price range for the period, the indicator is in the oversold area. in general, buy signals are given after the William’s Percent Range Technical Indicator enters the area between 80 and 100% and when prices start rising.
Calculation
TBelow is the formula of the William’s Percent Range Technical Indicator calculation, which is very same as to the stochastic oscillator formula:
%R = (HIGH (i-n)-CLOSE)/ (HIGH (i-n)-LOW (i-n))*100
Where:
%R – indicates as Williams’ Percent Range Technical Indicator
CLOSE – indicates today’s closing price.
HIGH(i-1) – indicates the highest high over a number (n) of previous periods.
LOW (i-1) – indicates the lowest low over a number (n) of previous periods.
