Archive for July 31st, 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))
