Archive for July 28th, 2008:
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.
