Archive for July 29th, 2008:
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
