Average Directional Movement Index (ADX)

Average Directional Movement Index Technical Indicator (ADX) helps to determine if there is a price trend. It was developed and described in detail by Welles Wilder in his book "New concepts in technical trading systems".

The simplest trading method based on the system of directional movement implies comparison of two direction indicators: the 14-period +DI one and the 14-period -DI. To do this, one either puts the charts of indicators one on top of the other, or +DI is subtracted from -DI. W. Wilder recommends buying when +DI is higher than -DI, and selling when +DI sinks lower than -DI.

To these simple commercial rules Wells Wilder added "a rule of points of extremum". It is used to eliminate false signals and decrease the number of deals. According to the principle of points of extremum, the "point of extremum" is the point when +DI and -DI cross each other. If +DI raises higher than -DI, this point will be the maximum price of the day when they cross. If +DI is lower than -DI, this point will be the minimum price of the day they cross

The point of extremum is used then as the market entry level. Thus, after the signal to buy (+DI is higher than -DI) one must wait till the price has exceeded the point of extremum, and only then buy. However, if the price fails to exceed the level of the point of extremum, one should retain the short position.

Calculation

ADX = SUM[(+DI-(-DI))/(+DI+(-DI)), N]/N

Where:

N — the number of periods used in the calculation.

Bollinger Bands® (BB)

Bollinger Bands Technical Indicator (BB) is similar to Envelopes. The only difference is that the bands of Envelopes are plotted a fixed distance (%) away from the movingaverage, while the Bollinger Bands are plotted a certain number of standard deviations away from it. Standard deviation is a measure of volatility, therefore Bollinger Bands adjust themselves to the market conditions. When the markets become more volatile, the bands widen and they contract during less volatile periods

Bollinger Bands are usually plotted on the price chart, but they can be also added to the indicator chart (Custom Indicators). Just like in case of the Envelopes, the interpretation of the Bollinger Bands is based on the fact that the prices tend to remain in between the top and the bottom line of the bands. A distinctive feature of the Bollinger Band indicator is its variable width due to the volatility of prices. In periods of considerable price changes (i.e. of high volatility) the bands widen leaving a lot of room to the prices to move in. During standstill periods, or the periods of low volatility the band contracts keeping the prices within their limits.

The following traits are particular to the Bollinger Band:

  • 1. abrupt changes in prices tend to happen after the band has contracted due to decrease of volatility.
  • 2. if prices break through the upper band, a continuation of the current trend is to be expected.
  • 3. if the pikes and hollows outside the band are followed by pikes and hollows inside the band, a reverse of trend may occur.
  • 4. the price movement that has started from one of the band’s lines usually reaches the opposite one. The last observation is useful
  • for forecasting price guideposts.

Calculation

Bollinger bands are formed by three lines. The middle line (ML) is a usual Moving Average.

ML = SUM [CLOSE, N]/N

The top line, TL, is the same as the middle line a certain number of standard deviations (D) higher than the ML.

TL = ML + (D*StdDev)

The bottom line (BL) is the middle line shifted down by the same number of standard deviations.

BL = ML — (D*StdDev)

Where:

N — is the number of periods used in calculation;

SMA — Simple Moving Average;

StdDev — means Standard Deviation.

StdDev = SQRT(SUM[(CLOSE — SMA(CLOSE, N))^2, N]/N)

It is recommended to use 20-period Simple Moving Average as the middle line, and plot top and bottom lines two standard deviations away from it. Besides, moving averages of less than 10 periods are of little effect.

Commodity Channel Index (CCI)

Commodity Channel Index Technical Indicator (CCI) measures the deviation of the commodity price from its average statistical price. High values of the index point out that the price is unusually high being compared with the average one, and low values show that the price is too low. In spite of its name, the Commodity Channel Index can be applied for any financial instrument, and not only for the wares.There are two basic techniques of using Commodity Channel Index:

1. Finding the divergences : The divergence appears when the price reaches a new maximum, and Commodity Channel Index can not grow above the previous maximums. This classical divergence is normally followed by the price correction.

2. As an indicator of overbuying/overselling : Commodity Channel Index usually varies in the range of ±100. Values above +100 inform about overbuying state (and about a probability of correcting decay), and the values below 100 inform about the overselling state (and about a probability of correcting increase).

Calculation

1. To find a Typical Price. You need to add the HIGH, the LOW, and the CLOSE prices of each bar and then divide the result by 3.

    TP = (HIGH + LOW +CLOSE)/3

2. To calculate the n-period Simple Moving Average of typical prices.

    SMA(TP, N) = SUM[TP, N]/N

3. To subtract the received SMA(TP, N) from Typical Prices.

    D = TP — SMA(TP, N)

4. To calculate the n-period Simple Moving Average of absolute D values.

    SMA(D, N) = SUM[D, N]/N

5. To multiply the received SMA(D, N) by 0,015.

    M = SMA(D, N) * 0,015

6. To divide M by D

    CCI = M/D

Where:

SMA — Simple Moving Average;

N — number of periods, used for calculation.

Moving Average Technical Indicator

The Moving Average Technical Indicator shows the mean instrument price value for a certain period of time. When one calculates the moving average, one averages out the instrument price for this time period. As the price changes, its moving average either increases, or decreases.

There are four different types of moving averages: Simple (also referred to as Arithmetic), Exponential, Smoothed and Linear Weighted. Moving averages may be calculated for any sequential data set, including opening and closing prices, highest and lowest prices, trading volume or any other indicators. It is often the case when double moving averages are used.

The only thing where moving averages of different types diverge considerably from each other, is when weight coefficients, which are assigned to the latest data, are different. In case we are talking of simple moving average, all prices of the time period in question, are equal in value. Exponential and Linear Weighted Moving Averages attach more value to the latest prices.

The most common way to interpreting the price moving average is to compare its dynamics to the price action. When the instrument price rises above its moving average, a buy signal appears, if the price falls below its moving average, what we have is a sell signal.

This trading system, which is based on the moving average, is not designed to provide entrance into the market right in its lowest point, and its exit right on the peak. It allows to act according to the following trend: to buy soon after the prices reach the bottom, and to sell soon after the prices have reached their peak.

Moving averages may also be applied to indicators. That is where the interpretation of indicator moving averages is similar to the interpretation of price moving averages: if the indicator rises above its moving average, that means that the ascending indicator movement is likely to continue: if the indicator falls below its moving average, this means that it is likely to continue going downward.

There are two basic techniques of using Commodity Channel Index:

Calculation

Simple Moving Average (SMA)

Simple, in other words, arithmetical moving average is calculated by summing up the prices of instrument closure over a certain number of single periods (for instance, 12 hours). This value is then divided by the number of such periods.

Where:

N — is the number of periods used in calculation;

SMA — Simple Moving Average;

StdDev — means Standard Deviation.

Exponential Moving Average (EMA)

Exponentially smoothed moving average is calculated by adding the moving average of a certain share of the current closing price to the previous value. With exponentially smoothed moving averages, the latest prices are of more value. P-percent exponential moving average will look like:

EMA = (CLOSE(i)*P)+(EMA(i-1)*(1-P))

Where:

CLOSE(i) — the price of the current period closure;

EMA(i-1) — Exponentially Moving Average of the previous period closure;

P — the percentage of using the price value.

Smoothed Moving Average (SMMA)

The first value of this smoothed moving average is calculated as the simple moving average (SMA):

SUM1 = SUM(CLOSE, N)

SMMA1 = SUM1/N

The second and succeeding moving averages are calculated according to this formula:

PREVSUM = SMMA(i-1) *N

SMMA(i) = (PREVSUM-SMMA(i-1)+CLOSE(i))/N

Where:

SUM1 — is the total sum of closing prices for N periods;

PREVSUM — is the smoothed sum of the previous bar;

SMMA1 — is the smoothed moving average of the first bar;

SMMA(i) — is the smoothed moving average of the current bar (except for the first one);

CLOSE(i) — is the current closing price;

N — is the smoothing period.

Linear Weighted Moving Average (LWMA)

In the case of weighted moving average, the latest data is of more value than more early data. Weighted moving average is calculated by multiplying each one of the closing prices within the considered series, by a certain weight coefficient.

LWMA = SUM(Close(i)*i, N)/SUM(i, N)

Where:

SUM(i, N) — is the total sum of weight coefficients.

Parabolic SAR (Stop & Revers)

Parabolic SAR Technical Indicator was developed for analyzing the trending markets. The indicator is constructed on the price chart. This indicator is similar to the Moving Average Technical Indicator with the only difference that Parabolic SAR moves with higher acceleration and may change its position in terms of the price. The indicator is below the prices on the bull market (Up Trend), when it’s bearish (Down Trend),it is above the prices.

If the price crosses Parabolic SAR lines, the indicator turns, and its further values are situated on the other side of the price. When such an indicator turn does take place, the maximum or the minimum price for the previous period would serve as the starting point. When the indicator makes a turn, it gives a signal of the trend end (correction stage or flat), or of its turn.

The Parabolic SAR is an outstanding indicator for providing exit points. Long positions should be closed when the price sinks below the SAR line, short positions should be closed when the price rises above the SAR line. It is often the case that the indicator serves as a trailing stop line.

If the long position is open (i.e., the price is above the SAR line), the Parabolic SAR line will go up, regardless of what direction the prices take. The length of the SAR line movement depends on the scale of the price movement.

Calculation

SAR(i) = SAR(i-1)+ACCELERATION*(EPRICE(i-1)-SAR(i-1))

Where:

SAR(i-1) — is the value of the indicator on the previous bar;

ACCELERATION — is the acceleration factor;

EPRICE(i-1) — is the highest (lowest) price for the previous period (EPRICE=HIGH for long positions and EPRICE=LOW for short positions).

The indicator value increases if the price of the current bar is higher than previous bullish and vice versa. The acceleration factor (ACCELERATION) will double at the same time, which would cause Parabolic SAR and the price to come together. In other words, the faster the price grows or sinks, the faster the indicator approaches the price.

Standard Deviation (StdDev)

Technical indicator named Standard Deviation (StdDev) measures the market volatility. This indicator charactrizes the scale of price changes relating to the Moving Average. Thus, if the indicator value is large, the market is volatile and the bars prices are rather dispersed relating to the moving average. If the indicator value is not large, it means that the market volatility is low and the bars prices are rather close to the moving average.

Normally, this indicator is used as a constituent of other indicators. Thus, when Bollinger Bands is calculated, the value of the symbol standard deviation is added to its Moving Average.

otherwise, if it is extremely high, it most probably means that activity will decline soon.

  • if its value is too low, i.e., the market is absolutely inactive, it makes sense to expect a spike soon;
  • The use of the OTP can be forced on a live server.

Calculation

StdDev (i) = SQRT (AMOUNT (j = i - N, i) / N)

AMOUNT (j = i - N, i) = SUM ((ApPRICE (j) - MA (ApPRICE (i), N, i)) ^ 2)

Where:

StdDev (i) — Standard Deviation of the current bar;

SQRT — square root;

AMOUNT(j = i - N, i) — sum of squares from j = i - N to i;

N — smoothing period;

ApPRICE (j) — the applied price of the j-th bar;

MA (ApPRICE (i), N, i) — any moving average of the current bar for N periods;

ApPRICE (i) — the applied price of the current bar.

ZigZag

The Zigzag indicator is a series of trend lines connecting significant peaks and foundations at the price plot. Minimum price change parameter determines the percentage for the price to move in order to form a new "Zig" or "Zag" line. This indicator eliminates those changes on the plot we analyze that are less than the given v alue. Therefore, the Zigzag reflects significant changes only.

In most cases, we use Zigzag to facilitate the perception of plots as it shows only the most important changes and turns. You can also reveal Elliot Waves and various figures on the plot with its aid.

It is important to understand that the last section of the indicator may vary depending on the changes of data you analyze. This is one of those indicators, where a change of securities price can provoke a change of the previous value. This ability to correct its values by the following price changes makes Zigzag a perfect tool for analyzing price changes that have already happened. Therefore, you should not try to create a trade system basing on the Zigzag. It is more suitable for analyzing historical data than for making prognoses.

Williams' Accumulation/Distribution (Williams'A/D)

Williams' AD is the accumulated sum of positive "accumulational" and negative "distributional" price movements. For example, if the current closing price is higher than the previous one, W/AD increases by the difference between the current closing price and the true minimum. If the current closing price is lower than the previous one, W/AD decreases by the difference between the current closing price and the true maximum.

The term "accumulation" denotes a market controlled by purchasers and the term "distribution" means that sellers control the market.

Divergences between the indicator and the price are a signals. Like most indicators, W/AD leads the tool price. In other words, when a divergence appears, the price changes its direction according to the indicator.

  • If the price reaches a new maximum, but the accumulation/distribution indicator cannot reach a new maximum, it means that the security is distributing itself. It is a signal for sell.
  • If the price reaches a new minimum, but the accumulation/distribution indicator cannot reach a new minimum, it means that the security is accumulating. It is a signal for buy.

Calculation

To calculate the accumulation/distribution indicator, first you have to find a "True Range High" (TRH) and "True Range Low" (TRL):

TRH (i) = MAX (HIGH (i) || CLOSE (i - 1))

TRL (i) = MIN (LOW (i) || CLOSE (i - 1))

Then you must find the current value of accumulation/distribution (CurA/D) by comparing today and yesterday's closing prices.

  • If the current closing price is higher than the previous one, then:
    CurА/D = CLOSE (i) - ТRL (i)
  • If the current closing price is lower than the previous one, then:
    CurА/D = CLOSE (i) - ТRH (i)
  • If current and previous closing prices coincide then:
    /D = 0

Williams' accumulation/distribution indicator is a growing sum of these values for each day:

WА/D (i) = CurА/D + WА/D (i - 1)

Where:

TRH (i) — the True Range High;

TRL (i) — the True Range Low;

MIN — the minimum value;

MAX — the maximum value;

|| — the logical OR;

LOW (i) — the minimum price of the current bar;

HIGH (i) — the maximum price of the current bar;

CLOSE (i) — the closing price of the current bar;

CLOSE (i - 1) — the closing price of the previous bar;

CurА/D — means current value of accumulation/distribution;

WА/D (i) — the current value of William's Accumulation/Distribution indicator;

WА/D (i - 1) — the value of William's Accumulation/Distribution indicator on the previous bar.

Average True Range Technical Indicator (ATR)

Average True Range Technical Indicator (ATR) is an indicator that shows volatility of the market. It was introduced by Welles Wilder in his book "New concepts in technical trading systems". This indicator has been used as a component of numerous other indicators and trading systems ever since.

Average True Range can often reach a high value at the bottom of the market after a sheer fall in prices occasioned by panic selling. Low values of the indicator are typical for the periods of sideways movement of long duration which happen at the top of the market and during consolidation. Average True Range can be interpreted according to the same principles as other volatility indicators. The principle of forecasting based on this indicator can be worded the following way: the higher the value of the indicator, the higher the probability of a trend change; the lower the indicator’s value, the weaker the trend’s movement is.

Calculation

True Range is the greatest of the following three values:

  • difference between the current maximum and minimum (high and low);
  • difference between the previous closing price and the current maximum;
  • difference between the previous closing price and the current minimum.

The indicator of Average True Range is a moving average of values of the true range.

Demarker Technical Indicator

Demarker Technical Indicator is based on the comparison of the period maximum with the previous period maximum. If the current period (bar) maximum is higher, the respective difference between the two will be registered. If the current maximum is lower or equaling the maximum of the previous period, the naught value will be registered. The differences received for N periods are then summarized. The received value is used as the numerator of the DeMarker and will be divided by the same value plus the sum of differences between the price minima of the previous and the current periods (bars). If the current price minimum is greater than that of the previous bar, the naught value will be registered.

When the indicator falls below 30, the bullish price reversal should be expected. When the indicator rises above 70, the bearish price reversal should be expected.

If you use periods of longer duration, when calculating the indicator, you’ll be able to catch the long term market tendency. Indicators based on short periods let you enter the market at the point of the least risk and plan the time of transaction so that it falls in with the major trend.

Calculation

The value of the DeMarker for the "i" interval is calculated as follows:

  • The DeMax(i) is calculated:
    If high(i) > high(i-1) , then DeMax(i) = high(i)-high(i-1), otherwise DeMax(i) = 0
  • The DeMin(i) is calculated:
    If low(i) < low(i-1), then DeMin(i) = low(i-1)-low(i), otherwise DeMin(i) = 0
  • The value of the DeMarker is calculated as:
    DMark(N) = SMA(DeMax, N)/(SMA(DeMax, N)+SMA(DeMin, N))

The indicator of Average True Range is a moving average of values of the true range.

Where:

SMA — Simple Moving Average;

N — the number of periods used in the calculation.

Envelopes

Envelopes Technical Indicator is formed with two Moving Averages one of which is shifted upward and another one is shifted downward. The selection of optimum relative number of band margins shifting is determined with the market volatility: the higher the latter is, the stronger the shift is.

Envelopes define the upper and the lower margins of the price range. Signal to sell appears when the price reaches the upper margin of the band; signal to buy appears when the price reaches the lower margin.

The logic behind envelopes is that overzealous buyers and sellers push the price to the extremes (i.e., the upper and lower bands), at which point the prices often stabilize by moving to more realistic levels. This is similar to the interpretation of Bollinger Bands.

Calculation

Upper Band = SMA(CLOSE, N)*[1+K/1000]

Lower Band = SMA(CLOSE, N)*[1-K/1000]

Where:

SMA — Simple Moving Average;

N — averaging period;

K/1000 — the value of shifting from the average (measured in basis points).

Force Index

Force Index Technical Indicator was developed by Alexander Elder. This index measures the Bulls Power at each increase, and the Bulls Power at each decrease. It connects the basic elements of market information: price trend, its drops, and volumes of transactions. This index can be used as it is, but it is better to approximate it with the help of Moving Average. Approximation with the help a short moving average (the author proposes to use 2 intervals) contributes to finding the best opportunity to open and close positions. If the approximations is made with long moving average (period 13), the index shows the trends and their changes.

  • It is better to buy when the forces become minus (fall below zero) in the period of indicator increasing tendency;
  • The force index signalizes the continuation of the increasing tendency when it increases to the new peak;
  • The signal to sell comes when the index becomes positive during the decreasing tendency;
  • The force index signalizes the Bears Power and continuation of the decreasing tendency when the index falls to the new trough;
  • If price changes do not correlate to the corresponding changes in volume, the force indicator stays on one level, which tells you the trend is going to change soon.

Calculation

The force of every market movement is characterized by its direction, scale and volume. If the closing price of the current bar is higher than the preceding bar, the force is positive. If the current closing price if lower than the preceding one, the force is negative. The greater the difference in prices is, the greater the force is. The greater the transaction volume is, the greater the force is.

Where:

FORCE INDEX (i) — Force Index of the current bar;

VOLUME (i) — volume of the current bar;

MA (ApPRICE, N, i) — any Moving Average of the current bar for N

period: Simple, Exponential, Weighted or Smoothed;

ApPRICE — applied price;

N — period of the smoothing;

MA (ApPRICE, N, i-1) — any Moving Average of the previous bar.

Ichimoku Kinko Hyo

Ichimoku Kinko Hyo Technical Indicator is predefined to characterize the market Trend, Support and Resistance Levels, and to generate signals of buying and selling. This indicator works best at weekly and daily charts.

When defining the dimension of parameters, four time intervals of different length are used. The values of individual lines composing this indicator are based on these intervals:

  • Tenkan-sen shows the average price value during the first time interval defined as the sum of maximum and minimum within this time, divided by two;
  • Kijun-sen shows the average price value during the second time interval;
  • Senkou Span A shows the middle of the distance between two previous lines shifted forwards by the value of the second time interval;
  • Senkou Span B shows the average price value during the third time interval shifted forwards by the value of the second time interval.
  • Chinkou Span shows the closing price of the current candle shifted backwards by the value of the second time interval.

The distance between the Senkou lines is hatched with another color and called "cloud". If the price is between these lines, the market should be considered as non-trend, and then the cloud margins form the support and resistance levels:

  • If the price is above the cloud, its upper line forms the first support level, and the second line forms the second support level;
  • If the price is below cloud, the lower line forms the first resistance level, and the upper one forms the second level;
  • If the Chinkou Span line traverses the price chart in the bottom-up direction it is signal to buy. If the Chinkou Span line traverses the price chart in the top-down direction it is signal to sell.

Kijun-sen is used as an indicator of the market movement. If the price is higher than this indicator, the prices will probably continue to increase. When the price traverses this line the furthertrend changing is possible.

Another kind of using the Kijun-sen is giving signals. Signal to buy is generated when the Tenkan-sen line traverses the Kijun-sen in the bottom-up direction. Top-down direction is the signal to sell.

Tenkan-sen is used as an indicator of the market trend. If this line increases or decreases, the trend exists. When it goes horizontally, it means that the market has come into the channel.

Momentum

The Momentum Technical Indicator measures the amount that a security’s price has changed over a given time span.

There are basically two ways to use the Momentum indicator:

You can use the Momentum indicator as a trend-following oscillator similar to the Moving Average Convergence/Divergence (MACD). Buy when the indicator bottoms and turns up and sell when the indicator peaks and turns down. You may want to plot a short-term moving average of the indicator to determine when it is bottoming or peaking.

If the Momentum indicator reaches extremely high or low values (relative to its historical values), you should assume a continuation of the current trend. For example, if the Momentum indicator reaches extremely high values and then turns down, you should assume prices will probably go still higher. In either case, only trade after prices confirm the signal generated by the indicator (e.g., if prices peak and turn down, wait for prices to begin to fall before selling).

You can also use the Momentum indicator as a leading indicator. This method assumes that market tops are typically identified by a rapid price increase (when everyone expects prices to go higher) and that market bottoms typically end with rapid price declines (when everyone wants to get out). This is often the case, but it is also a broad generalization.

As a market peaks, the Momentum indicator will climb sharply and then fall off — diverging from the continued upward or sideways movement of the price. Similarly, at a market bottom, Momentum will drop sharply and then begin to climb well ahead of prices. Both of these situations result in divergences between the indicator and prices.

Calculation

Momentum is calculated as a ratio of today’s price to the price several (N) periods ago.

MOMENTUM = CLOSE(i)/CLOSE(i-N)*100

Where:

CLOSE(i) — is the closing price of the current bar;

CLOSE(i-N) — is the closing bar price N periods ago.

Moving Average Convergence/Divergence (MACD)

You can use the Momentum indicator as a trend-following oscillator similar to the Moving Average Convergence/Divergence (MACD). Buy when the indicator bottoms and turns up and sell when the indicator peaks and turns down. You may want to plot a short-term moving average of the indicator to determine when it is bottoming or peaking.

Moving Average Convergence/Divergence (MACD) is the next trend-following dynamic indicator. It indicates the correlation between two price moving averages.

The Moving Average Convergence/Divergence (MACD) Technical Indicator is the difference between a 26-period and 12-period Exponential Moving Average (EMA). In order to clearly show buy/sell opportunities, a so-called signal line (9-period indicators` moving average) is plotted on the MACD chart.

If the Momentum indicator reaches extremely high or low values (relative to its historical values), you should assume a continuation of the current trend. For example, if the Momentum indicator reaches extremely high values and then turns down, you should assume prices will probably go still higher. In either case, only trade after prices confirm the signal generated by the indicator (e.g., if prices peak and turn down, wait for prices to begin to fall before selling).

You can also use the Momentum indicator as a leading indicator. This method assumes that market tops are typically identified by a rapid price increase (when everyone expects prices to go higher) and that market bottoms typically end with rapid price declines (when everyone wants to get out). This is often the case, but it is also a broad generalization.

As a market peaks, the Momentum indicator will climb sharply and then fall off — diverging from the continued upward or sideways movement of the price. Similarly, at a market bottom, Momentum will drop sharply and then begin to climb well ahead of prices. Both of these situations result in divergences between the indicator and prices.

Crossovers

The basic MACD trading rule is to sell when the MACD falls below its signal line. Similarly, a buy signal occurs when the Moving Average Convergence/Divergence rises above its signal line. It is also popular to buy/sell when the MACD goes above/below zero.

Overbought/oversold conditions

The MACD is also useful as an overbought/oversold indicator. When the shorter moving average pulls away dramatically from the longer moving average (i.e., the MACD rises), it is likely that the security price is overextending and will soon return to more realistic levels.

Divergence

An indication that an end to the current trend may be near occurs when the MACD diverges from the security. A bullish divergence occurs when the Moving Average Convergence/Divergence indicator is making new highs while prices fail to reach new highs. A bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows. Both of these divergences are most significant when they occur at relatively overbought/oversold levels.

Calculation

The MACD is calculated by subtracting the value of a 26-period exponential moving average from a 12-period exponential moving average. A 9-period dotted simple moving average of the MACD (the signal line) is then plotted on top of the MACD.

MACD = EMA(CLOSE, 12)-EMA(CLOSE, 26)

SIGNAL = SMA(MACD, 9)

Where:

EMA — the Exponential Moving Average;

SMA — the Simple Moving Average;

SIGNAL — the signal line of the indicator.

Moving Average Convergence/Divergence (MACD)

You can use the Momentum indicator as a trend-following oscillator similar to the Moving Average Convergence/Divergence (MACD). Buy when the indicator bottoms and turns up and sell when the indicator peaks and turns down. You may want to plot a short-term moving average of the indicator to determine when it is bottoming or peaking.

Moving Average of Oscillator is the difference between the oscillator and oscillator smoothing. In this case, Moving Average Convergence/Divergence base-line is used as the oscillator, and the signal line is used as the smoothing.

Calculation

OSMA = MACD-SIGNAL

Relative Strength Index (RSI)

The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100. When Wilder introduced the Relative Strength Index, he recommended using a 14-day RSI.. Since then, the 9-day and 25-day Relative Strength Index indicators have also gained popularity.

A popular method of analyzing the RSI is to look for a divergence in which the security is making a new high, but the RSI is failing to surpass its previous high. This divergence is an indication of an impending reversal. When the Relative Strength Index then turns down and falls below its most recent trough, it is said to have completed a "failure swing". The failure swing is considered a confirmation of the impending reversal.Ways to use Relative Strength Index for chart analysis:

  • Tops and bottoms

    The Relative Strength Index usually tops above 70 and bottoms below 30. It usually forms these tops and bottoms before the underlying price chart;

  • Chart Formations

    The RSI often forms chart patterns such as head and shoulders or triangles that may or may not be visible on the price chart;

  • Failure swing ( Support or Resistance penetrations or breakouts)

    This is where the Relative Strength Index surpasses a previous high (peak) or falls below a recent low (trough);

  • Support and Resistance levels

    The Relative Strength Index shows, sometimes more clearly than price themselves, levels of support and resistance.

  • Divergences

    As discussed above, divergences occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the Relative Strength Index. Prices usually correct and move in the direction of the RSI.

Calculation

RSI = 100-(100/(1+U/D))

Where:

U — is the average number of positive price changes;

D — is the average number of negative price changes.

Relative Vigor Index (RVI)

The main point of Relative Vigor Index Technical Indicator (RVI) is that on the bull market the closing price is, as a rule, higher, than the opening price. It is the other way round on the bear market. So the idea behind Relative Vigor Index is that the vigor, or energy, of the move is thus established by where the prices end up at the close. To normalize the index to the daily trading range, divide the change of price by the maximum range of prices for the day. To make a more smooth calculation, one uses Simple Moving Average. 10 is the best period. To avoid probable ambiguity one needs to construct a signal line,which is a 4-period symmetrically weighted moving average of Relative Vigor Index values. The concurrence of lines serves as a signal to buy or to sell.

Calculation

RVI = (CLOSE-OPEN)/(HIGH-LOW)

Where:

OPEN — is the opening price;

HIGH — is the maximum price;

LOW — is the minimum price;

CLOSE — is the closing price.

Stochastic Oscillator

The Stochastic Oscillator Technical Indicator compares where a security’s price closed relative to its price range over a given time period. The Stochastic Oscillator is displayed as two lines. The main line is called %K. The second line, called %D, is a MovingAverage of %K. The %K line is usually displayed as a solid line and the %D line is usually displayed as a dotted line.

There are several ways to interpret a Stochastic Oscillator. Three popular methods include:

Buy when the Oscillator (either %K or %D) falls below a specific level (e.g., 20) and then rises above that level. Sell when the Oscillator rises above a specific level (e.g., 80) and then falls below that level;

Calculation

The Stochastic Oscillator has four variables:

%K periods. This is the number of time periods used in the stochastic calculation;

%K Slowing Periods. This value controls the internal smoothing of %K. A value of 1 is considered a fast stochastic; a value of 3 is considered a slow stochastic;

%D periods. his is the number of time periods used when calculating a moving average of %K;

D method. The method (i.e., Exponential, Simple, Smoothed, or Weighted) that is used to calculate %D.The formula for %K is:

%K = (CLOSE-LOW(%K))/(HIGH(%K)-LOW(%K))*100

Where:

N — is the smoothing period;

SMA — is the Simple Moving Average.

Williams’ Percent Range (%R)

Williams’ Percent Range Technical Indicator (%R) is a dynamic technical indicator, which determines whether the market is overbought/oversold. Williams’ %R is very similar to theStochastic Oscillator. The only difference is that %R has an upside down scale and the Stochastic Oscillator has internal smoothing. To show the indicator in this upside down fashion, one places a minus symbol before the Williams Percent Range values (for example -30%). One should ignore the minus symbol when conducting the analysis.

Indicator values ranging between 80 and 100% indicate that the market is oversold. Indicator values ranging between 0 and 20% indicate that the market is overbought.

As with all overbought/oversold indicators, it is best to wait for the security’s price to change direction before placing your trades. For example, if an overbought/oversold indicator is showing an overbought condition, it is wise to wait for the security’s price to turn down before selling the security.

An interesting phenomenon of the Williams Percent Range indicator is its uncanny ability to anticipate a reversal in the underlying security’s price. The indicator almost always forms a peak and turns down a few days before the security’s price peaks and turns down. Likewise, Williams Percent Range usually creates a trough and turns up a few days before the security’s price turns up.

Calculation

TBelow is the formula of the %R indicator calculation, which is very similar to the Stochastic Oscillator formula:

%R = (HIGH(i-n)-CLOSE)/(HIGH(i-n)-LOW(i-n))*100

Where:

CLOSE — is today’s closing price;

HIGH(i-n) — is the highest high over a number (n) of previous periods;

LOW(i-n) — is the lowest low over a number (n) of previous periods.

Accumulation/Distribution Technical Indicator

Accumulation/Distribution Technical Indicator is determined by the changes in price and volume. The volume acts as a weighting coefficient at the change of price — the higher the coefficient (the volume) is, the greater the contribution of the price change (for this period of time) will be in the value of the indicator.

In fact, this indicator is a variant of the more commonly used indicator On Balance Volume. They are both used to confirm price changes by means of measuring the respective volume of sales.

When the Accumulation/Distribution indicator grows, it means accumulation (buying) of a particular security, as the overwhelming share of the sales volume is related to an upward trend of prices. When the indicator drops, it means distribution (selling) of the security, as most of sales take place during the downward price movement.

Divergences between the Accumulation/Distribution indicator and the price of the security indicate the upcoming change of prices. As a rule, in case of such divergences, the price tendency moves in the direction in which the indicator moves. Thus, if the indicator is growing, and the price of the security is dropping, a turnaround of price should be expected.

Calculation

A certain share of the daily volume is added to or subtracted from the current accumulated value of the indicator. The nearer the closing price to the maximum price of the day is, the higher the added share will be. The nearer the closing price to the minimum price of the day is, the greater the subtracted share will be. If the closing price is exactly in between the maximum and minimum of the day, the indicator value remains unchanged.

A/D(i) =((CLOSE(i) - LOW(i)) - (HIGH(i) - CLOSE(i)) * VOLUME(i) / (HIGH(i) - LOW(i)) + A/D(i-1)

Where:

A/D(i) — importance of the Indicator of the Accumulation/Distribution for the current bar;

CLOSE(i) — the price of the closing the bar;

LOW(i) — the minimum price of the bar;

HIGH(i) — the maximum price of the bar;

VOLUME(i) — volume;

A/D(i-1) — importance of the Indicator of the Accumulation/Distribution for previous bar.

Money Flow Index

Money Flow Index (MFI) is the technical indicator, which indicates the rate at which money is invested into a security and then withdrawn from it. Construction and interpretation of the indicator is similar to RelativeStrengthIndex with the only difference that volume is important to MFI.When analyzing the money flow index one needs to take into consideration the following points:

divergences between the indicator and price movement. If prices grow while MFI falls (or vice versa), there is a great probability of a price turn;

Money Flow Index value, which is over 80 or under 20, signals correspondingly of a potential peak or bottom of the market.

Calculation

The calculation of Money Flow Index includes several stages. At first one defines the typical price (TP) of the period in question.

TP = (HIGH + LOW + CLOSE)/3

Then one calculates the amount of the Money Flow (MF):

If today’s typical price is larger than yesterday’s TP, then the money flow is considered positive. If today’s typical price is lower than that of yesterday, the money flow is considered negative.

A positive money flow is a sum of positive money flows for a selected period of time. A negative money flow is the sum of negative money flows for a selected period of time.

Then one calculates the money ratio (MR) by dividing the positive money flow by the negative money flow:

MR = Positive Money Flow (PMF)/Negative Money Flow (NMF)

And finally, one calculates the money flow index using the money ratio:

MFI = 100 - (100 / (1 + MR))

On Balance Volume (OBV)

On Balance Volume Technical Indicator (OBV) is a momentum technical indicator that relates volume to price change. The indicator, which Joseph Granville came up with, is pretty simple. When the security closes higher than the previous close, all of the day’s volume is considered up-volume. When the security closes lower than the previous close, all of the day’s volume is considered down-volume.

The basic assumption, regarding On Balance Volume analysis, is that OBV changes precede price changes. The theory is that smart money can be seen flowing into the security by a rising OBV. When the public then moves into the security, both the security and the On Balance Volume will surge ahead.

If the security’s price movement precedes OBV movement, a "non-confirmation" has occurred. Non-confirmations can occur at bull market tops (when the security rises without, or before, the OBV) or at bear market bottoms (when the security falls without, or before, the On Balance Volume Technical Indicator).

The OBV is in a rising trend when each new peak is higher than the previous peak and each new trough is higher than the previous trough. Likewise, the On Balance Volume is in a fallingtrend when each successive peak is lower than the previous peak and each successive trough is lower than the previous trough. When the OBV is moving sideways and is not making successive highs and lows, it is in a doubtful trend.

Once a trend is established, it remains in force until it is broken. There are two ways in which the On Balance Volume trend can be broken. The first occurs when the trend changes from a rising trend to a falling trend, or from a falling trend to a rising trend.

The second way the OBV trend can be broken is if the trend changes to a doubtful trend and remains doubtful for more than three days. Thus, if the security changes from a rising trend to a doubtful trend and remains doubtful for only two days before changing back to a rising trend, the On Balance Volume is considered to have always been in a rising trend.

When the OBV changes to a rising or falling trend, a "breakout" has occurred. Since OBV breakouts normally precede price breakouts, investors should buy long on On Balance Volume upside breakouts. Likewise, investors should sell short when the OBV makes a downside breakout. Positions should be held until the trend changes.

Calculation

If today’s close is greater than yesterday’s close then:

OBV(i) = OBV(i-1)-VOLUME(i)

If today’s close is equal to yesterday’s close then:

OBV(i) = OBV(i-1)

Where:

OBV(i) — is the indicator value of the current period;

OBV(i-1) — is the indicator value of the previous period;

VOLUME(i) — is the volume of the current bar.

Alligator

"Most of the time the market remains stationary. Only for some 15–30% of time the market generates trends, and traders who are not located in the exchange itself derive most of their profits from the trends. My Grandfather used to repeat: "Even a blind chicken will find its corns, if it is always fed at the same time". We call the trade on the trend "a blind chicken market". It took us years, but we have produced an indicator, that lets us always keep our powder dry until we reach the blind chicken market".

Bill WilliamsIn principle, Alligator Technical Indicator is a combination of Balance Lines (Moving Averages) that use fractal geometry and nonlinear dynamics.

The blue line (Alligator’s Jaw) is the Balance Line for the timeframe that was used to build the chart (13-period Smoothed Moving Average, moved into the future by 8 bars);

The red line (Alligator’s Teeth) is the Balance Line for the value timeframe of one level lower (8-period Smoothed Moving Average, movedby 5 bars into the future);

The green line (Alligator’s Lips) is the Balance Line for the value timeframe, one more level lower (5-period Smoothed Moving Average, moved by 3 bars into the future).

Lips, Teeth and Jaw of the Alligator show the interaction of different time periods. As clear trends can be seen only 15 to 30 per cent of the time, it is essential to follow them and refrain from working on markets that fluctuate only within certain price periods.

When the Jaw, the Teeth and the Lips are closed or intertwined, it means the Alligator is going to sleep or is asleep already. As it sleeps, it gets hungrier and hungrier — the longer it will sleep, the hungrier it will wake up. The first thing it does after it wakes up is to open its mouth and yawn. Then the smell of food comes to its nostrils: flesh of a bull or flesh of a bear, and the Alligator starts to hunt it. Having eaten enough to feel quite full, the Alligator starts to lose the interest to the food/price (Balance Lines join together) — this is the time to fix the profit.

Awesome Oscillator (AO)

Signals to buy

Saucer

This is the only signal to buy that comes when the bar chart is higher than the zero line. One must bear in mind:

the saucer signal is generated when the bar chart reversed its direction from the downward to upward. The second column is lower than the first one and is colored red. The third column is higher than the second and is colored green.

for the saucer signal to be generated the bar chart should have at least three columns.

Keep in mind, that all Awesome Oscillator columns should be over the zero line for the saucer signal to be used.

Zero line crossing

The signal to buy is generated when the bar chart passes from the area of negative values to that of positive. It comes when the bar chart crosses the zero line. As regards this signal:

for this signal to be generated, only two columns are necessary;

the first column is to be below the zero line, the second one is to cross it (transition from a negative value to a positive one);

simultaneous generation of signals to buy and to sell is impossible.

Twin peaks

This is the only signal to buy that can be generated when the bar chart values are below the zero line. As regards this signal, please, bear in mind:

another by followed is and line zero the below which minimum lowest (the down pointing peak a have you when generated signal the down-pointing) peak which is somewhat higher (a negative figure with a lesser absolute value, which is therefore closer to the zero line), than the previous down-looking peak.

the bar chart is to be below the zero line between the twin peaks. If the bar chart crosses the zero line in the section between the peaks, the signal to buy doesn’t function. However, a different signal to buy will be generated — zero line crossing.

each new peak of the bar chart is to be higher (a negative number of a lesser absolute value that is closer to the zero line) than the previous peak.

if an additional higher peak is formed (that is closer to the zero line) and the bar chart has not crossed the zero line, an additional signal to buy will be generated.

Signals to buy

Awesome Oscillator signals to sell are identical to the signals to buy. The saucer signal is reversed and is below zero. Zero line crossing is on the decrease — the first column of it is over the zero, the second one is under it. The twin peaks signal is higher than the zero line and is reversed too.

Calculation

AO is a 34-period simple moving average, plotted through the central points of the bars (H+L)/2, and subtracted from the 5-period simple moving average, graphed across the central points of the bars (H+L)/2.

MEDIAN PRICE = (HIGH+LOW)/2

AO = SMA(MEDIAN PRICE, 5)-SMA(MEDIAN PRICE, 34)

Where:

SMA — Simple Moving Average.

Fractals

All markets are characterized by the fact that on the most part the prices do not change too much, and only short periods of time (15–30 percent) account for trend changes. Most lucrative periods are usually the case when market prices change according to a certain trend.

A Fractal is one of five indicators of Bill Williams’ trading system, which allows to detect the bottom or the top.

Fractal Technical Indicator it is a series of at least five successive bars, with the highest HIGH in the middle, and two lower HIGHs on both sides. The reversing set is a series of at least five successive bars, with the lowest LOW in the middle, and two higher LOWs on both sides, which correlates to the sell fractal. The fractals are have High and Low values and are indicated with the up and down arrows.

The fractal needs to be filtrated with the use of Alligator. In other words, you should not close a buy transaction, if the fractal is lower than the Alligator’s Teeth, and you should not close a sell transaction, if the fractal is higher than the Alligator’s Teeth. After the fractal signal has been created and is in force, which is determined by its position beyond the Alligator’s Mouth, it remains a signal until it gets attacked, or until a more recent fractal signal emerges.

Gator Oscillator — Gator

Gator Oscillator is based on the Alligator and shows the degree of convergence/divergence of the Balance Lines (Smoothed Moving Averages). The top bar chart is the absolute difference between the values of the blue and the red lines. The bottom bar chart is the absolute difference between the values of the red line and the green line, but with the minus sign, as the bar chart is drawn top-down.

Calculation

MEDIAN PRICE = (HIGH + LOW) / 2

ALLIGATORS JAW = SMMA (MEDIAN PRICE, 13, 8)

ALLIGATORS TEETH = SMMA (MEDIAN PRICE, 8, 5)

ALLIGATORS LIPS = SMMA (MEDIAN PRICE, 5, 3)

Market Facilitation Index (BW MFI)

Market Facilitation Index Technical Indicator (BW MFI) is the indicator which shows the change of price for one tick. Absolute values of the indicator do not mean anything as they are, only indicator changes have sense. Bill Williams emphasizes the interchanging of MFI and volume:

Market Facilitation Index increases and volume increases — this points out that: a) the number of players coming into the market increases (volume increases) b) the new coming players open positions in the direction of bar development, i.e., the movement has begun and picks up speed;

Market Facilitation Index falls and volume falls. It means the market participants are not interested anymore;

Market Facilitation Index increases, but the volume falls. It is most likely, that the market is not supported with the volume from clients, and the price is changing due to traders’ (brokers and dealers) "on the floor" speculations;

Market Facilitation Index falls, but the volume increases. There is a battle between bulls and bears, characterized by a large sell and buy volume, but the price is not changing significantly since the forces are equal. One of the contending parties (buyers vs. sellers) will eventually win the battle. Usually, the break of such a bar lets you know if this bar determines the continuation of the trend or annuls the trend. Bill Williams calls such bar "curtsying".

Calculation

To calculate Market Facilitation Index you need to subtract the lowest bar price from the highest bar price and divide it by the volume.

BW MFI = RANGE*(HIGH-LOW)/VOLUME

Where:

RANGE — is the multiplication factor, which brings the difference in points down to whole numbers.

Formation

In order to create a candlestick chart, you must have a data set that contains open, high, low and closevalues for each time period you want to display. The hollow or filled portion of the candlestick is called “the body” (also referred to as “the real body”). The long thin lines above and below the body represent the high/low range and are called “shadows” (also referred to as “wicks” and “tails”). The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow. If the stock closes higher than its opening price, a hollow candlestick is drawn with the bottom of the body representing the opening price and the top of the body representing the closing price. If the stock closes lower than its opening price, a filled candlestick is drawn with the top of the body representing the opening price and the bottom of the body representing the closing price.

Compared to traditional bar charts, many traders consider candlestick charts more visually appealing and easier to interpret. Each candlestick provides an easy-to-decipher picture of price action. Immediately a trader can compare the relationship between the open and close as well as the high and low. The relationship between the open and close is considered vital information and forms the essence of candlesticks.Hollow candlesticks, where the close is greater than the open, indicate buying pressure.Filled candlesticks, where the close is less than the open, indicate selling pressure.

Long Versus Short Bodies

Generally speaking, the longer the body is, the more intense the buying or selling pressure. Conversely, short candlesticks indicate little price movement and represent consolidation.

Long white candlesticks show strong buying pressure. The longer the white candlestick is, the further the close is above the open. This indicates that prices advanced significantly from open to close and buyers were aggressive. While long white candlesticks are generally bullish, much depends on their position within the broader technical picture. After extended declines, long white candlesticks can mark a potential turning point orsupportlevel. If buying gets too aggressive after a long advance, it can lead to excessive bullishness.

Long black candlesticks show strong selling pressure. The longer the black candlestick is, the further the close is below the open. This indicates that prices declined significantly from the open and sellers were aggressive. After a long advance, a long black candlestick can foreshadow a turning point or mark a futureresistance level. After a long decline a long black candlestick can indicate panic or capitulation.

Even more potent long candlesticks are the Marubozu brothers, Black and White. Marubozu do not have upper or lower shadows and the high and low are represented by the open or close. A White Marubozu forms when the open equals the low and the close equals the high. This indicates that buyers controlled the price action from the first trade to the last trade. Black Marubozu form when the open equals the high and the close equals the low. This indicates that sellers controlled the price action from the first trade to the last trade.

LONG VERSUS SHORT SHADOWS

The upper and lower shadows on candlesticks can provide valuable information about the trading session. Upper shadows represent the session high and lower shadows the session low. Candlesticks with short shadows indicate that most of the trading action was confined near the open and close. Candlesticks with long shadows show that prices extended well past the open and close.

Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the session, and bid prices higher. However, sellers later forced prices down from their highs, and the weak close created a long upper shadow. Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the session and drove prices lower. However, buyers later resurfaced to bid prices higher by the end of the session and the strong close created a long lower shadow.

Candlesticks with a long upper shadow, long lower shadow and small real body are called spinning tops. One long shadow represents a reversal of sorts; spinning tops represent indecision. The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that both bulls and bears were active during the session. Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand and the result was a standoff. After a long advance or long white candlestick, a spinning top indicates weakness among the bulls and a potential change or interruption in trend. After a long decline or long black candlestick, a spinning top indicates weakness among the bears and a potential change or interruption in trend.

DOJI

Doji are important candlesticks that provide information on their own and as components of in a number of important patterns. Doji form when a security's open and close are virtually equal. The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus sign. Alone, doji are neutral patterns. Any bullish or bearish bias is based on preceding price action and future confirmation. The word “Doji” refers to both the singular and plural form.

Ideally, but not necessarily, the open and close should be equal. While a doji with an equal open and close would be considered more robust, it is more important to capture the essence of the candlestick. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session, but close at or near the opening level. The result is a standoff. Neither bulls nor bears were able to gain control and a turning point could be developing.

Different securities have different criteria for determining the robustness of a doji. A $20 stock could form a doji with a 1/8 point difference between open and close, while a $200 stock might form one with a 1 1/4 point difference. Determining the robustness of the doji will depend on the price, recent volatility, and previous candlesticks. Relative to previous candlesticks, the doji should have a very small body that appears as a thin line. Steven Nison notes that a doji that forms among other candlesticks with small real bodies would not be considered important. However, a doji that forms among candlesticks with long real bodies would be deemed significant.

Doji and Trend

The relevance of a doji depends on the preceding trend or preceding candlesticks. After an advance, or long white candlestick, a doji signals that the buying pressure is starting to weaken. After a decline, or long black candlestick, a doji signals that selling pressure is starting to diminish. Doji indicate that the forces of supply and demand are becoming more evenly matched and a change in trend may be near. Doji alone are not enough to mark a reversal and further confirmation may be warranted.

After an advance or long white candlestick, a doji signals that buying pressure may be diminishing and the uptrend could be nearing an end. Whereas a security can decline simply from a lack of buyers, continued buying pressure is required to sustain an uptrend. Therefore, a doji may be more significant after an uptrend or long white candlestick. Even after the doji forms, further downside is required for bearish confirmation. This may come as a gap down, long black candlestick, or decline below the long white candlestick's open. After a long white candlestick and doji, traders should be on the alert for a potential evening doji star.

After a decline or long black candlestick, a doji indicates that selling pressure may be diminishing and the downtrend could be nearing an end. Even though the bears are starting to lose control of the decline, further strength is required to confirm any reversal. Bullish confirmation could come from a gap up, long white candlestick or advance above the long black candlestick's open. After a long black candlestick and doji, traders should be on the alert for a potential morning doji star.

Long-Legged Doji

Long-legged doji have long upper and lower shadows that are almost equal in length. These doji reflect a great amount of indecision in the market. Long-legged doji indicate that prices traded well above and below the session's opening level, but closed virtually even with the open. After a whole lot of yelling and screaming, the end result showed little change from the initial open.

Dragon Fly and Gravestone Doji

Dragon Fly Doji

Dragon fly doji form when the open, high and close are equal and the low creates a long lower shadow. The resulting candlestick looks like a “T” with a long lower shadow and no upper shadow. Dragon fly doji indicate that sellers dominated trading and drove prices lower during the session. By the end of the session, buyers resurfaced and pushed prices back to the opening level and the session high.

The reversal implications of a dragon fly doji depend on previous price action and future confirmation. The long lower shadow provides evidence of buying pressure, but the low indicates that plenty of sellers still loom. After a long downtrend, long black candlestick, or at support , a dragon fly doji could signal a potential bullish reversal or bottom. After a long uptrend, long white candlestick or at resistance, the long lower shadow could foreshadow a potential bearish reversal or top. Bearish or bullish confirmation is required for both situations.

Gravestone Doji

Gravestone doji form when the open, low and close are equal and the high creates a long upper shadow. The resulting candlestick looks like an upside down “T” with a long upper shadow and no lower shadow. Gravestone doji indicate that buyers dominated trading and drove prices higher during the session. However, by the end of the session, sellers resurfaced and pushed prices back to the opening level and the session low.

As with the dragon fly doji and other candlesticks, the reversal implications of gravestone doji depend on previous price action and future confirmation. Even though the long upper shadow indicates a failed rally, the intraday high provides evidence of some buying pressure. After a long downtrend, long black candlestick, or at support, focus turns to the evidence of buying pressure and a potential bullish reversal. After a long uptrend, long white candlestick or at resistance, focus turns to the failed rally and a potential bearish reversal. Bearish or bullish confirmation is required for both situations. Before turning to the single and multiple candlestick patterns, there are a few general guidelines to cover.

BULLS VERSUS BEARS

A candlestick depicts the battle between Bulls (buyers) and Bears (sellers) over a given period of time. An analogy to this battle can be made between two football teams, which we can also call the Bulls and the Bears. The bottom (intra-session low) of the candlestick represents a touchdown for the Bears and the top (intra-session high) a touchdown for the Bulls. The closer the close is to the high, the closer the Bulls are to a touchdown. The closer the close is to the low, the closer the Bears are to a touchdown. While there are many variations, I have narrowed the field to 6 types of games (or candlesticks):

 Long white candlesticks indicate that the Bulls controlled the ball (trading) for most of the game.

 Long black candlesticks indicate that the Bearscontrolled the ball (trading) for most of the game.

 Small candlesticks indicate that neither team could move the ball and prices finished about where they started.

 A long lower shadow indicates that the Bears controlled the ball for part of the game, but lost control by the end and the Bulls made an impressive comeback.

 A long upper shadow indicates that the Bulls controlled the ball for part of the game, but lost control by the end and the Bears made an impressive comeback.

 A long upper and lower shadow indicates that the both the Bears and the Bulls had their moments during the game, but neither could put the other away, resulting in a standoff.

WHAT CANDLESTICKS DON'T TELL YOU

Candlesticks do not reflect the sequence of events between the open and close, only the relationship between the open and the close. The high and the low are obvious and indisputable, but candlesticks (and bar charts) cannot tell us which came first.

With a long white candlestick, the assumption is that prices advanced most of the session. However, based on the high/low sequence, the session could have been more volatile. The example above depicts two possible high/low sequences that would form the same candlestick. The first sequence shows two small moves and one large move: a small decline off the open to form the low, a sharp advance to form the high, and a small decline to form the close. The second sequence shows three rather sharp moves: a sharp advance off the open to form the high, a sharp decline to form the low, and a sharp advance to form the close. The first sequence portrays strong, sustained buying pressure, and would be considered more bullish. The second sequence reflects more volatility and some selling pressure. These are just two examples, and there are hundreds of potential combinations that could result in the same candlestick. Candlesticks still offer valuable information on the relative positions of the open, high, low and close. However, the trading activity that forms a particular candlestick can vary.

PRIOR TREND

Candlesticks do not reflect the sequence of events between the open and close, only the relationship between the open and the close. The high and the low are obvious and indisputable, but candlesticks (and bar charts) cannot tell us which came first.

In his book, Candlestick Charting Explained, Greg Morris notes that for a pattern to qualify as a reversal pattern, there should be a prior trend to reverse. Bullish reversals require a preceding downtrend and bearish reversals require a prior uptrend. The direction of the trend can be determined using trend lines, moving averages , peak/trough analysis or other aspects of technical analysis. A downtrend might exist as long as the security was trading below its down trend line, below its previous reaction high or below a specific moving average. The length and duration will depend on individual preferences. However, because candlesticks are short-term in nature, it is usually best to consider the last 1-4 weeks of price action.

CANDLESTICK POSITIONING

Star Position

A candlestick that gaps away from the previous candlestick is said to be in star position. The first candlestick usually has a large real body, but not always, and the second candlestick in star position has a small real body. Depending on the previous candlestick, the star position candlestick gaps up or down and appears isolated from previous price action. The two candlesticks can be any combination of white and black. Doji, hammers,shooting starsand spinning tops have small real bodies, and can form in the star position. Later we will examine 2- and 3-candlestick patterns that utilize the star position.

Harami Position

A candlestick that forms within the real body of the previous candlestick is in Harami position. Harami means pregnant in Japanese and the second candlestick is nestled inside the first. The first candlestick usually has a large real body and the second a smaller real body than the first. The shadows (high/low) of the second candlestick do not have to be contained within the first, though it's preferable if they are. Doji and spinning tops have small real bodies, and can form in the harami position as well. Later we will examine candlestick patterns that utilize the harami position.

LONG SHADOW REVERSALS

There are two pairs of single candlestick reversal patterns made up of a small real body, one long shadow and one short or non-existent shadow. Generally, the long shadow should be at least twice the length of the real body, which can be either black or white. The location of the long shadow and preceding price action determine the classification.

The first pair, Hammer and Hanging Man, consists of identical candlesticks with small bodies and long lower shadows. The second pair, Shooting Star and Inverted Hammer, also contains identical candlesticks, except, in this case, they have small bodies and long upper shadows. Only preceding price action and further confirmation determine the bullish or bearish nature of these candlesticks. The Hammer and Inverted Hammer form after a decline and are bullish reversal patterns, while the Shooting Star and Hanging Man form after an advance and are bearish reversal patterns.

Hammer and Hanging Man

The Hammer and Hanging Man look exactly alike, but have different implications based on the preceding price action. Both have small real bodies (black or white), long lower shadows and short or non-existent upper shadows. As with most single and double candlestick formations, the Hammer and Hanging Man require confirmation before action.

The Hammer is a bullish reversal pattern that forms after a decline. In addition to a potential trend reversal, hammers can mark bottoms or support levels. After a decline, hammers signal a bullish revival. The low of the long lower shadow implies that sellers drove prices lower during the session. However, the strong finish indicates that buyers regained their footing to end the session on a strong note. While this may seem enough to act on, hammers require further bullish confirmation. The low of the hammer shows that plenty of sellers remain. Further buying pressure, and preferably on expanding volume, is needed before acting. Such confirmation could come from a gap upor long white candlestick. Hammers are similar to selling climaxes, and heavy volume can serve to reinforce the validity of the reversal.

The Hanging Man is a bearish reversal pattern that can also mark a top or resistance level. Forming after an advance, a Hanging Man signals that selling pressure is starting to increase. The low of the long lower shadow confirms that sellers pushed prices lower during the session. Even though the bulls regained their footing and drove prices higher by the finish, the appearance of selling pressure raises the yellow flag. As with the Hammer, a Hanging Man requires bearish confirmation before action. Such confirmation can come as a gap down or long black candlestick on heavy volume.

Inverted Hammer and Shooting Star

The Inverted Hammer and Shooting Star look exactly alike, but have different implications based on previous price action. Both candlesticks have small real bodies (black or white), long upper shadows and small or nonexistent lower shadows. These candlesticks mark potential trend reversals, but require confirmation before action.

The Shooting Star is a bearish reversal pattern that forms after an advance and in the star position, hence its name. A Shooting Star can mark a potential trend reversal or resistance level. The candlestick forms when prices gap higher on the open, advance during the session and close well off their highs. The resulting candlestick has a long upper shadow and small black or white body. After a large advance (the upper shadow), the ability of the bears to force prices down raises the yellow flag. To indicate a substantial reversal, the upper shadow should relatively long and at least 2 times the length of the body. Bearish confirmation is required after the Shooting Star and can take the form of a gap down or long black candlestick on heavy volume..

The Inverted Hammer looks exactly like a Shooting Star, but forms after a decline or downtrend. Inverted Hammers represent a potential trend reversal or support levels. After a decline, the long upper shadow indicates buying pressure during the session. However, the bulls were not able to sustain this buying pressure and prices closed well off of their highs to create the long upper shadow. Because of this failure, bullish confirmation is required before action. An Inverted Hammer followed by a gap up or long white candlestick with heavy volume could act as bullish confirmation.

BLENDING CANDLESTICKS

Candlestick patterns are made up of one or more candlesticks and can be blended together to form one candlestick. This blended candlestick captures the essence of the pattern and can be formed using the following:

 The open of first candlestick

 The close of the last candlestick

 The high and low of the pattern

By using the open of the first candlestick, close of the second candlestick, and high/low of the pattern, a Bullish Engulfing Patternor Piercing Patternblends into a Hammer. The long lower shadow of the Hammer signals a potential bullish reversal. As with the Hammer, both the Bullish Engulfing Pattern and the Piercing Pattern require bullish confirmation.

Blending the candlesticks of a Bearish Engulfing Pattern or Dark Cloud Cover Pattern creates a Shooting Star. The long, upper shadow of the Shooting Star indicates a potential bearish reversal. As with the Shooting Star, Bearish Engulfing, and Dark Cloud Cover Patterns require bearish confirmation.

More than two candlesticks can be blended using the same guidelines: open from the first, close from the last and high/low of the pattern. Blending Three White Soldiers creates a long white candlestick and blendingThree Black Crowscreates a long black candlestick.

BULLISH CANDLES

A bullish candle is what traders call any candle that has a bullish body. After the baby candle grows up and dies (closes) with a bullish body, it is a bullish candle. If it has a strong bullish body, it is a strong bullish candle. If it has a small bullish body, it is a weak bullish candle. Simple, right? But, think about it. The candle does not only tell you the price, it tells you the bulls are winning and they have power. There are more buyers than sellers!

This is critical information in this market. If your system tells you to go short but the candle is clearly bullish, it might be a good idea to hold off on the short. Why would anybody go short when there are more buyers in the market?

BEARISH CANDLES

A bearish candle is any candle that has a bearish body. So what does the bearish candle tell you? It tells you there are more sellers in the market than there are buyers. It tells you that the sellers are currently in control, so a long position would not be a great idea.

WICKS

Besides displaying a candle's highs and lows, wicks offer an abundance of information.Remember the battle between the bulls and the bears? Well it's time to learn what it's all about in relation to wicks.

If a strong Bullish candle suggests that the bulls are in control of the market, what does a bearish candle with a large upper wick and a small bearish body suggest?

Small lower wick, small bearish body and larger upper wick:This candle suggests that at some point while this candle was open the bulls tried to push the price up. This is what the long upper wick tells us. However, before this candle closed the bears took over and pushed the price back down. This is shown by the bearish body close.

Large lower wick, small bullish body and small upper wick:This candle suggests that at some point while this candle was open the bears tried to push the price down. This is what the long lower wick tells us. However, before this candle closed the bulls took over and pushed the price back up. This is shown by the bullish body close.

These are just some of the very basic concepts of candle trading. In the next section, you will learn why this information is useful.

WHAT YOU'VE LEARNED

A Bullish Candle Means: There is currently more buying pressure in the market. As long as buyers maintain enough buying pressure the candles will be bullish. If buying pressure eases and selling pressure increases bullish candles will become smaller, representing decreased bull strength.

Bearish Candle: There is currently more selling pressure in the market. As long as sellers maintain enough selling pressure the candles will be bearish. If selling pressure eases and buying pressure increases, bearish candles will become smaller, representing decreased bear strength.

Wicks: Wicks show the highs and lows but in certain cases reading them reveals some very useful information.

SL-Namo

 Take an entry from next candle of the signal.

 Red and Green arrows are of buy and sell signal.

 Black candles showing you the Bearish candle.

 White candles showing you the Bullish candle.

 SL Namo has two Dashboards.

 First Dashboard shows you Bid/Ask rates, Trend, Last Signal, Current Profit Point from entry level, 2 Targets, & Stop Loss.

 Second Dashboard shows Current Trend, Last Signal, Open Price, Current Profit/Loss Points, and Overall Result according to different time frames.

Note:

Before taking Real Position according to Signals, We suggest you to do paper trades for Minimum 3 days to build confidence on strategy. It helps to understand real time market risk.

Sl-Trand

 Take an entry from next candle of the signal.

 Red and White dots showing trailing stop loss.

 Vertical white line is for day separator.

 Downtrend/Uptrend showing you the possibilities of market going to be up or down.

 3 horizontal lines are of Customized trend channel.

 Red and Green arrows Indicates buy and sell signal.

 Digits in yellow color showing time left for close of current candle.

 Big Green digits showing you the current market price.

 For intraday positions,we suggest you to watch M15 Time Frame.

 For positional positions, we suggest you to watch H1/H4 Time Frame

 Green candles showing you the Bullish candle.

 Red candle showing you the Bearish candle.

 5 Targets are given, according to the Buy & Sell signal.

 White digits in white box showing you the current stop loss.

Note:

Before taking Real Position according to Signals, We suggest you to do paper trades for Minimum 3 days to build confidence on strategy. It helps to understand real time market risk.

Step-1

Go to Play Store/App Store & search “Meta Trader 4”.

Get it Install & Download

2 step

Open (Meta Trader 4) Application.

Click On “Login with existing Account”.

3 step

Find Broker Name With “TradeMono-Live”

4 step

Input Login ID And Password

Click On “Sign In”

5 step

Click On Symbol Of “+”To Get The Scripts Of Indian Ecxhanges.

6 step

Click on the Particular script to select.

7 step

Go to the Quotes where you can find your selected script.

8 step

Click on selected script And open the chart

9 step

For indicator window Click on Small “f”.

10 step

Set parameters of the indicators.

11 step

Click on Symbol of watch to change the Timeframe.

12 step

Click on symbol of “$” to change the chart.

1 step

We Provide MCX, NSE,MCX-SX,COMEX tick by tick Live data feeds on Meta Trader 4 For Technical Analysis

Download our terminal by click on this link:

Download Our terminal

2 step

Click on Next

3 step

Click on tick box and Press Next

4 step

Click on Next

5 step

Click on Finish

6 step

Go to File -> Login to trade account -> Input Login ID and Password Confirm the correct server for your Live or Demo account -> select the server from the drop down menu ->SLFx-Live

7 step

This error occurs when MT4 is not getting Internet connectivity..

8 step

Account Disabled means that your real account hasn't been activated yet.

9 step

Common Error occurs, when there is a multiple login with the same ID.

10 step

Invalid Account occurs when the login Credentials entered incorrectly.

Step-1

Go to Play Store/App Store & search “Meta Trader 5”.

Get it Install & Download

2 step

Open (Meta Trader 5) Application.

Click On “Login with existing Account”.

3 step

Find Broker Name With “Sharon-Live”

4 step

Input Login ID And Password

Click On “Sign In”

5 step

Click On Symbol Of “+”To Get The Scripts Of Indian Ecxhanges.

6 step

Click on the Particular script to select.

7 step

Go to the Quotes where you can find your selected script.

8 step

Click on selected script And open the chart

9 step

For indicator window Click on Small “f”.

10 step

Set parameters of the indicators.

11 step

Click on Symbol of watch to change the Timeframe.

12 step

Click on symbol of “$” to change the chart.

1 step

We Provide MCX, NSE,MCX-SX,COMEX,SGX Nifty,LME,GOLD AM/PM,FCPO tick by tick Live data feeds on Meta Trader 4 For Technical Analysis

Download our terminal by click on this link:

Download Our terminal

2 step

Click on Next

3 step

Click on tick box and Press Next

4 step

5 step

Go to File -> Login to trade account -> Input Login ID and Password Confirm the correct server for your Live or Demo account -> select the server from the drop down menu -> Sharon Security

6 step