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7 Most Commonly Used Technical Analysis Indicators in the Stock Market

Indicators are used as a measure to gain further insight into to the supply and demand of securities w ithin technical analysis . Those in...

Tuesday, August 30, 2016

Adjusting your Stop Loss Orders using Moving Average

Adjusting your Stop Loss Orders using Moving Average

Adjust your stop loss orders, after some time, toward the pattern being traded: 

- In an up-trend move your stop loss up to underneath or below the Low of the latest trough. 

- In a down-trend move your stop loss down to over or above the High of the last top/peak. 

Just a break in the pattern/trend (or large correction) will stop you out. 

Utilizing Moving Averages 


An alternative  approach, that may keep you from being shaken out of a pattern too soon, is to utilize a long-term moving average in conjunction with the above. Stan Weinstein (Secrets for Profiting in Bull and Bear Markets) proposes utilizing a 30-week moving average. This is reasonable for speculators following the primary trend, adjust the length of the moving average if trading in a shorter time allotment. 

In an up-trend, move your stop loss to below: 

- the Low of the latest trough, or 

- the moving average, whichever is lower. 

In a down-trend, move your stop loss to above: 

- the High of the latest top, or 

- the moving average, whichever is higher. 

Example:

Johnson and Johnson is graphed with a blue 63-day exponential moving average. Stop loss order levels are delineated by yellow horizontal trendlines. 

Adjusting Stop Loss Orders
Adjusting your Stop-Loss Order


1. Go long [L]. The sign is taken when price regards the moving average. A stop loss order is put at [S1], below the Low of the latest trough or below the moving average, whichever is lower (appeared by the begin of the trend line). 

2. At [S2] move the stop loss up to beneath the moving average at the following trough. 

3. At [S3] move the stop loss to beneath the Low at the following trough (this is lower than the moving average). 

4. At [S4] move the stop loss to beneath the moving average at the following trough. 

5. The stop loss order is actuated [X] when the following correction falls underneath the previous trough. 

Ranging Market 

In a ranging market, adjust your stop loss in view of the cycle in one-time frame shorter than the cycle being exchanged. For example, if trading an intermediate (in a ranging market), move your stop loss orders up or down as per the short cycle.

Tuesday, August 23, 2016

Setting Up Stop Loss Orders

Setting Up Stop Loss Orders


Stop loss order levels should be in fact consistent, else they will cost you money. Self-assertive levels are liable to be initiated by the ordinary cycle. 

Base your stop losses on specialized levels, for example, 


Example

This example represents the use of 2 diverse specialized levels for stop losses: 

The primary stop loss is set just below the level of the latest trough. 

The second stop-loss is put below the support line (on a reversal signal above the support line). 

stop-loss-order-setting


Backing and Resistance Levels 

Avoid from setting your stop loss precisely at the support or resistance level for two reasons: 

1. Trends regularly switch at these levels and you might be stopped out superfluously; 

2. A large number of stops might be set at the support or resistance level, particularly where it has framed at a round number. 

Rather set your stop loss one or two ticks below a support level or one or two ticks above a resistance level. For instance: If a support level has shaped at $20.00, set the stop loss at $19.90 so that you are only stopped out if the support level is penetrated.

Saturday, August 20, 2016

Stop Loss Orders

Stop-loss orders or "stops" are the limitation set by traders at which they will naturally enter or leave a trade - a request to buy or sell is put in the market if price achieves a predefined limit.

The principal discipline that any trader ought to master is to limit your losses.

A stop-loss order will set to limit a trader's potential loss. The stop loss is set below the present price (to ensure a long position) or above the present price (to secure a short position).



As a principle: Avoid markets with low liquidity where extreme price fluctuations are possible.

Stop Loss Order Types: 


Market Stop Orders 

This is a traditional stop loss order - the stop initiates a market request to sell(or buy) at the common market price.

Limit Stop Orders 

The limit stop activate an order to sell at the present market price yet not underneath a predetermined farthest point (or buy at the prevailing price up to a predefined limit).

Fixed Price Stop Orders 

The stop loss activates an order at a fixed price. A few trades refer to these as a limit stop orders so watch that you are utilizing the right stop loss order.

Limit stop order is prescribed for entering a trade. They have a more prominent possibility of success than fixed price orders yet are not as open-ended as market orders (where your order will be executed regardless of what the market price is).

Market stop orders ought to be utilized to leave trades: to guarantee that the order has the best ideal possibility of execution. Never clutch securities if price falls forcefully - with the expectation that they will recover. Edwin Lefevre wholes up the quandary in Reminiscences of a Stock Operator :

"It was the same with all. They would not take a small loss at first but had held on, in the hope of a recovery that would "let them out even." And prices had sunk and sunk until the loss was so great it seemed only proper to hold on, if need be a year, for sooner or later prices must come back. But the break "shook them out," and prices just went so much lower because so many people had to sell, whether they would or not."



Assessment of Stop Losses 



Stop loss orders don't generally work splendidly. If a major support level is breached, a large number of stops may be activated at the same time. Sellers will far surpass buyers, making price to fall forcefully and leaving sell orders unfilled. In compelling cases there might be no buyers at all for a security - not at any price.

Defective as they seem to be, stops are still a viable system for restricting danger and securing capital.

In the event that stops are not acknowledged in a market, set your own particular breaking points and put in buy and sell orders when the price is already reached.

Self-discipline is required to execute stops decisively.

Steps Required 


1. In the first place, decide your gmaximum acceptable loss;

2. Set stop loss order levels taking into account sound specialized levels;

3. Modify your stop loss levels after some time to secure profits;

4. Use trailing stops to time your entrance and exit from the market.

Monday, August 15, 2016

Risk Management: The 2 Percent Rule

Risk Management: The 2 Percent Rule

 2 Percent Rule


The 2 percent rule is a fundamental precept of risk management (I incline toward the expressions "risk management" or "capital protection" as they are more engaging than "money management"). Regardless of the fact that the chances are stacked to favor you, it is imprudent to risk a vast amount of your capital on a solitary trade.

Mr. Larry Hite, in Jack Schwager's Market Wizards (1989), notice two lessons gained from a companion: 


  1. Don't bet your way of life - never chance an extensive piece of your capital on a solitary trade; and 
  2. Always recognize what the worst result is.

Hite goes on depict his 1 percent rule which he applies to an extensive variety of business sectors. This has subsequent to been adjusted by traders and brokers as the 2 percent rule


The 2 Percent Rule: "Never risk your money more than 2 percent of your whole capital on only one stock."



This implies that 10 consecutive losses would only consume 20% of your capital. It doesn't imply that you have to trade 50 different stocks - your capital at danger is typically far not exactly the price of the stock. 

Applying the 2 Percent Rule:

1. Compute 2% of your trading capital: your Capital at Risk 

2. Deduct the brokerage fee during buy and sell to go at your Maximum Permissible Risk 

3. Compute your Risk per Share:
    Deduct your stop-loss from the buy price and  add an arrangement for slippage (not all stops are executed at as far as possible). For a short trade, the methodology is reversed: deduct the buy price from the stop-loss before adding slippage. 

4. The Maximum Number of Shares is then computed by dividing your Maximum Permissible Risk by the Risk per Share

EXAMPLE #1:

Think that your total trading capital is 20,000 pesos and your brokerage fees are fixed at 50 pesos per one trade. 

1. Your Capital at Risk is: 20,000 pesos * 2 % = 400 pesos per trade. 

2. Deduct brokerage fee, on the buy and sell, and your Maximum Permissible Risk is: 400 pesos - (2 * 50 pesos) = 300 pesos. 

3. Compute your Risk per Share

If the price of a stock is estimated at 10.00 pesos and you need to put a stop-loss at 9.50 pesos, then your risk is 50 cents per share. 

Add slippage of say 25 cents and your Risk per Share increments to 75 cents per share. 

4. The Maximum Number of Shares that you can buy is: 

300 pesos / 0.75 cents = 400 shares (at an expense of 4000 pesos)


EXAMPLE #2

Your capital is $20,000 and brokerage fee is lessened to $20 per trade. What number of shares of $10.00 would you be able to buy if you have stop-loss at $9.25? 

Apply the 2 percent rule. 

NOTE: Remember to take for a brokerage fee, on the buy and sell, and slippage (of say 25 cents/share). 

Answer: 360 shares (at an expense of $3600). 

Capital at Risk: $20,000 * 2 percent = $400 

Deduct brokerage fee: $400 - (2 * $20) = $360 

Risk per Share = $10.00 - $9.25 + $0.25 slippage = $1.00 per offer 

Most Number of Shares = $360/$1 = 360 shares


Summary:

A general rule for stock or currency markets is to never risk more than 2 percent of your capital on any one stock. This guideline may not be appropriate for long-term traders who appreciate higher risk reward proportions yet bring down success rates. The guideline ought to likewise not be applied in isolation: your greatest risk is the market risk where most stocks move as one. To ensure against this we ought to restrain our capital at risk in any one area furthermore our capital at risk in the whole market at any one time.

Thursday, August 11, 2016

Stock Trading: Introduction

Stock Trading: Introduction

"Stock Trading" Definition



Stock Trading or what we called "speculation" is the buying and selling of stocks to take profit in price movement in the short period of time. On the other hand, the opposite of trading is investing, where you can take profit through dividends.

When we allude to exchanging on this site we mean the purchasing and offering of financial resources (instead of land or collectibles). Money-related resources or securities are exchanged through perceived financial markets, whether formal, for example, most stock and commodity trades, or casual as on account of the money market.

Purchasing Long or Selling Short 

Traders will purchase long in a desire of a price rise or sell short in a desire of a price fall. Selling short requires the trader to obtain stock from a stock broker (so he can execute a deal and stock conveyance) with the object of acquiring the stock at a lower cost later on. Short sales ought to just be endeavored by experienced traders who completely comprehend the related dangers. 

Securing your capital (or cash management) 

The greatest danger that any trader appearances is that they will lose their capital. Regularly new traders will begin with a string of successful trades and their self-confidence develops: they never figure out how to apply sound cash management and breaking point their drawback hazard. Eventually, they experience a string of losing exchanges that either wipes them out or wipes out a sufficiently major segment of their capital that they quit trading. 

Vulnerability 

No trading framework can convey 100% exactness. Prices can go up or down whenever: it is just the probability that differs. As well as can be expected trust in is a likelihood of around 80% (that price will move in a predetermined direction). That implies that no less than one in five times you will not be right and the price will move against you. Truth be told, at whatever point you hear or utilize those words, you are in more danger of losing your capital than at some other time. 

On the off chance that you can't be 100% precise, by what means would you be able to make a profit? 

Similarly that a casino makes profits. On the off chance that the chances are stacked to support you (contrast 80% with the house favorable position of under 55% on a roulette wheel) you will have the capacity to acquire than you lose - gave that you don't risk all your capital on a solitary trade. 

A Simple Trading Formula 

Use stop losses to cut your losses on individual trades. 

Only risk a small amount of your capital on every trades: adhere to the 2 percent principle

Deal with your Emotions. 

Maintain a strategic distance from the pitfalls that anticipate newcomers: 


  • The Shakeout 
  • False Breaks - The Fakeout 
  • Pump and Dump 



Keep in mind, there is not a viable replacement for experience. Turning into a specialist trader requires some time and studying the market.

Tuesday, August 02, 2016

Start your Stock Market Trading

Start your Stock Market Trading

1. Know What Are You Going To Trade




Knowing what to trade will help you clarify what you don't want to trade.

The first step of becoming a trader is to know what securities to trade. The smaller group of securities to trade, the better specialized knowledge you are going to accumulate.


  • What market or exchange?
  • Types of Securities?
  • Sectors?
  • What size stocks?

Types of Security

Common shares, ETFs, REITs, preference shares, convertibles, hybrids, notes, debentures, corporate bonds, municipal bonds, government bonds, options, warrants, or futures. And, when it comes to futures, there are index futures; currencies; energy; grains and oil-seeds; bonds and interest rates; metals; meats; and softs.

Sectors

Specialize in certain sectors at one time I only traded IT and Communications Industries.

Size

Large caps, mid-caps, small-caps, penny stocks or some other criteria based on size or liquidity.


2. Know What Directions To Trade


Know whether you are going to trade long and short, or long only.

3. Know When To Trade

The character of the market changes when bears are in control. Anxiety levels are a lot higher and panic spreads faster than overconfidence. Declines are a lot steeper in a bear market than advances in a bull market; rallies in a bear market are more tentative than corrections in a bull market; and, because the falls are steeper, bear markets tend to have a shorter duration.


Trade when the time is right. When it is not right, trade another system or take some time off and go fishing.

4. Know How Much Capital To Trade

Only trade with money you can afford to lose. If you have money set aside for an upcoming operation, or your kid's college fees, don't trade with it. The market makes a living out of punishing those with a nonchalant view towards risk.

Leverage

Beware of leverage. Leverage is great when you have predictable returns. It can also deliver substantial tax advantages, given the right structure.

Example 1:

50% Leverage

If you invest in the stock market, with historic returns of 12.5% a year and volatility (measured as standard deviation of returns) of 25%, your Risk-Reward ratio is calculated as 

12.5/25 = 0.50 

I find Risk-Reward a useful tool as it weighs expected return against your expected risk. 

Now if we borrow an equal amount to our capital, at an interest rate of 8.0%, our returns will be enhanced. The expected return on equity is now 
(12.5%*2) - 8.0% = 17.0% 

Expected volatility, however, also doubles, to 50%. And the new Risk-Reward ratio is 

17.0/50 = 0.34 

So our enhanced return is not sufficient to compensate for the increased risk.

Now, imagine if you are offered a CFD (contract for difference) with 90% leverage.

Example 2:

CFD with 90% Leverage

Investing in the same market, with historic returns of 12.5% a year and volatility (measured as standard deviation of returns) of 25%, and assuming a lower interest rate of say 6.0%: 
We are now investing ten times our capital, giving an expected return on equity of 

(12.5%*10) - (9*6.0%) = 71.0% 

Expected volatility also increases 10 times, however, to 250%. The new Risk-Reward ratio is 

71/250 = 0.28 

The lower interest rate softens the blow, but again enhanced return is not sufficient to compensate for the increased risk. And volatility of 250% is the stuff of nightmares, with constant margin calls as your equity is wiped out by the magnified swings.

5. Know Your Cost

Brokerage and slippage are two important costs that you need to factor into your calculations. And the shorter the time frame that you trade, the higher your turnover, and the more important those two numbers become. 

Slippage is as important as brokerage and occurs when a trade executes at a price other than the expected price. Stop losses may be executed at a worse rate than the trigger level because price is falling fast and liquidity is low,  a common experience when market volatility is high.

Another instance is when markets gap up/down overnight. If you take signals on the close, you will frequently find that price moves overnight, so your execution in the morning is better or, more often, worse than the close of the night before.


Slippage also occurs when market orders are executed at worse than the expected price — when the spread alters. In a long trade, the Ask may increase. In a short trade, the Bid may fall. The larger the order, the more likely this is to occur when there is insufficient stock available at the Bid or Ask.

6. Know What Time Frame To Trade

Time frame is closely related to risk and cost. The longer your time frame, the lower your brokerage and slippage costs as a percentage of your capital. And the longer your time frame, the closer your actual return is likely to conform to your expected return, based on historic performance.

7. Know How Much To Trade

Trade all your capital on a single position and one wrong call will wipe you out. Trade a small percentage of your capital on any individual position and you are far more likely to survive any false steps.

8. Know How To Trade

Your choice of trading style is related to the time frame you trade.

Long-term

Positions are held for several months or longer.....often years.


  • Value investing
  • Trend-following
  • Momentum
  • Mean reversion
  • Medium-term


Positions are held for several weeks...... sometimes months.


  • Momentum
  • Swing trading
  • Mean reversion
  • Short-term


Positions are held for several days...... sometimes weeks.


  • Swing trading
  • Mean reversion
  • Pairs trading
  • Day trading


Positions are closed by the end of the day.


  • Scalping
  • Fading
  • Pivot trading
  • Pairs trading
  • High frequency trading (HFT)


Positions are held for milliseconds...... sometimes seconds, seldom minutes.


  • Scalping
  • Pairs trading
  • Arbitrage



9. Know When To Quit

Probably the most important step besides position-sizing (step #7). Knowing when to take profits and cut losses is crucial to profitability — more so than entering at the right time — for most systems.


Source/Reference:
Incredible Charts - Trading









Saturday, July 16, 2016

3 Day-Trading Technical Analysis Indicator for FOREX, CFD and Stocks

3 Day-Trading Technical Analysis Indicator for FOREX, CFD and Stocks

There are lots of technical analysis indicators, it is a complex task to go through them one by one. Hence, many of our readers have asked for recommendations of day trading indicators. 

To get you started with day trading, I suggest these three trading indicators.
  1. Donchian Channel
  2. Moving Average
  3. Stochastic Oscillator

They are simple, easy to understand, and useful for day trading. No, they are not perfect. But they form a nice package to start with.

1. DONCHIAN CHANNEL (BLUE)

Richard Donchian, the pioneer of trend following, invented the Donchian Channel. The channel plots the highest high and lowest low of a specified time period. An average of the two values is also calculated and plotted as the mid-line.
Donchian Channel shows you where the market is now, compared to its past, in a direct and visual way.
The Donchian Channel is useful for day trading as you can use it to keep on eye on the larger time frame. Use a 100-period Donchian Channel to keep you with the longer term trend.

2. MOVING AVERAGE (ORANGE/RED)

A x-period moving average is the average of the past x number of  price closes. As new price bars close, the moving average will move along, dropping the oldest close and including the newest close in its calculation.
The direction of the moving average highlights price trend, and the space between price and the moving average highlights momentum. This simple indicator packs a punch if you know how to use it.
While there are dozens of moving average flavors, start with the simple or exponential moving average with a 20-period setting for day trading.

3. STOCHASTIC OSCILLATOR (LOWER PANEL)

The stochastic oscillator is a popular day trading indicator.
Its working logic is like that of Donchian Channel, in the sense that it measures the current market position relative to the market’s past trading range. However, it assumes that the market is in a trading range and turns that measurement into an oscillator that moves between 0 to 100.
It is useful for finding day trade entries as it is sensitive and responsive. (Use %K-5, %D-3, Smooth-3 for your settings.)
For a multiple time-frame day trading method using stochastic, take a look at Kane’s %K Hooks strategy.

DAY TRADING INDICATORS – A WORD OF CAUTION

You get three indicators. Now it’s time for three warnings against them.
  1. Indicators are not perfect, understand when and how to use them.
  2. Don’t neglect price action when trading with indicators. Consider using price action patterns to improve your analysis. (Like this simple failure pattern, or the Hikkake pattern.)
  3. Do not overwhelm yourself with indicators. Consider the value of every single indicator you add to your chart. Does it add value? Remember to trade simply.

Sources:

Friday, July 15, 2016

MACD (Moving Average Convergence Divergence) - A Powerful Technical Analysis Indicator

There are over 180 indicators available to the Technical Analyst all attempting to determine what the share price is likely to do next, with the MACD & Moving average the most widely used. It is a testament to the human mind that we can take 5 pieces of information, the open, high, low, close and volume information and create all these different indicators.

Indicators work like magnifying glasses allowing a trader to closely examine the information available to them. The indicator however tells the trader no more than what they can see in a candlestick or bar chart. It is based on the same information.

Powerful Technical Analysis Indicator


Moving Average Convergence Divergence (MACD) trails only the combination of price and volume in my hierarchy of trading tools and indicators.  It's THAT good.  But it has one major limitation in that it only considers price action, not volume.  Hence, it cannot be trusted as much as price/volume.  There are many reasons why the MACD works in gauging momentum, too much in fact to discuss in one blog article so I'll write about the MACD often.  But I would suggest that before you follow ANY indicator that you fully understand how and why that indicator works - and its limitations.  Buying or selling a stock simply because "this line crosses that line" is a recipe for disaster.  You're swimming in a sea of market maker-infested waters and your capital is the bait.  When I lose on a trade, I want to at least know that I had a plan to limit my risk and maximize my potential return.  If it results in a loss, then so be it.  Stock trading is a zero-sum game.  Someone is going to win and someone is going to lose.  Our goal should be two-fold:  (1) to win more than we lose and (2) to have higher percentage winners than losers.  If we can achieve both, we'll make money.  It sounds easy, but it takes a lot of knowledge, patience, discipline and experience.

The MACD is a powerful tool to help us achieve our goals.

Moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.



There are three (3) common methods used to interpret the MACD:

1. Crossovers - As shown in the chart above, when the MACD falls below the signal line, it is a bearish signal, which indicates that it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum. Many traders wait for a confirmed cross above the signal line before entering into a position to avoid getting getting "faked out" or entering into a position too early, as shown by the first arrow.

2. Divergence - When the security price diverges from the MACD. It signals the end of the current trend.

3. Dramatic rise - When the MACD rises dramatically - that is, the shorter moving average pulls away from the longer-term moving average - it is a signal that the security is overbought and will soon return to normal levels.

Traders also watch for a move above or below the zero line because this signals the position of the short-term average relative to the long-term average. When the MACD is above zero, the short-term average is above the long-term average, which signals upward momentum. The opposite is true when the MACD is below zero.


Sources:

Tuesday, July 05, 2016

Secrets of Self-Made Billionaire Investors

Secrets of Self-Made Billionaire Investors

 
Warren Buffett, the world’s greatest investor, was born in 1930. He became a child of the Great Depression. Now, his value in excess of $50 billion.



George Soros was born the same year, and became a child of the Great Depression, the Holocaust and WWII. According to Forbes.com, his value over $19 billion.


Carl Icahn was born in 1936. He was once very broke he had to sell his car to feed himself. Forbes.com says he's worth around $20 billion today.

They were started with nothing. All went up billionaires. All did it by INVESTING.

At first glance, they don't seem to have much in common... Buffett buys stocks and whole companies and says his favorite holding period for investments is "forever." Soros became a billionaire by making huge leveraged trades in stocks and currencies. Icahn buys controlling stakes in public companies and badgers management to sell assets, buy back shares and do anything to realize hidden value.

But they do have some traits in common; a few core investing ideas that helped make them billionaires. Like every great secret of life, this one is hiding in plain sight. These three self-made billionaire investors...

1. Don't diversify
2. Avoid risk
3. Don't care what anyone else thinks

1: DON'T DIVERSIFY. CONCENTRATE.

Consider what your greatest source of wealth generation is likely: your career. You probably haven't diversified at all in your career. Even if you tried many different careers, you were never doing several of them at once. And, even if you do more than one job, it's highly likely you spend the great majority of your time at just one of them and that just one provides the great majority of your income.

Why should investing be any different?

For many years, Buffett had most of Berkshire Hathaway's money in just four stocks: American Express, Coca-Cola, Wells Fargo, and Gillette. Today, most of Berkshire Hathaway's money is still in just four stocks: Wells FargoCoca-Cola, IBM, and American Express.

2: AVOID RISK

When Carl Icahn bought Tappan shares, he was paying around $7.50 each. But he knew by looking at the balance sheet that the company was clearly worth $20 if it were broken up. That's a 62% discount to fair value, a very safe bet.

After Tappan, Icahn targeted a real estate investment trust called Baird and Warner. At the time he found it, the stock was trading for $7.89. Its book value was $14. That's a 44% discount to book value, and a generous margin of safety.

Soros manages risk differently than Icahn and Buffett. He says the first thing he's looking to do is survive, and he's known to beat a hasty retreat when he's wrong. He keeps loss potential in mind before trading. When he shorted $10 billion of British pounds in 1992, he first calculated that his worst-case loss scenario was about 4%.

3: THINK FOR THEMSELVES

Wall Street wouldn't buy shares of The Washington Post when Buffett started buying it in February 1973. That's true, even though most Wall Street analysts acknowledged that this was a $400 million company selling for $80 million. They were too scared because the overall market had been falling for some time.

Soros talks to lots of people to get a feel for where a market is going. But he never talks about what he's buying or selling. He just does it.

Carl Icahn doesn't need Wall Street, because he has his own research team. Icahn's people comb through thousands of listed companies to find the ones that are right for Icahn's corporate raider style. Icahn has to have his own research team. If he bought research from Wall Street, the whole world would figure out what he was doing, and it would become difficult to buy shares cheaply.

If you really want to be successful in stocks, these rules will be your foundation.

Source:



Sunday, July 03, 2016

7 Most Commonly Used Technical Analysis Indicators in the Stock Market


Indicators are used as a measure to gain further insight into to the supply and demand of securities within technical analysis. Those indicators (such as volume) confirm price movement, and the probability that the move will continue. The Indicators can also be used as a basis for stock trading, as they can create buy-and-sell signals.


1. On-Balance Volume

The on-balance volume indicator (OBV) is used to measure the positive(+) and negative(-) flow of volume in a security, relative to its price over time. It is a simple measure that keeps a cumulative total of volume by adding or subtracting each period's volume, depending on the price movement. This measure expands on the basic volume measure by combining volume and price movement. The idea behind this indicator is that volume precedes price movement, so if a security is seeing an increasing OBV, it is a signal that volume is increasing on upward price moves. Decreases mean that the security is seeing increasing volume on down days.



2. Accumulation/Distribution Line

One of the most commonly used indicators to determine the money flow of a security is the accumulation/distribution line (A/D line). It is similar to on-balance volume indicator but, instead of only considering the closing price of the security for the period, it also takes into account the trading range for the period. This is thought to give a more accurate picture of money flow than of balance volume. The line trending up is a signal of increasing buying pressure, as the stock is closing above the halfway point of the range. The line is trending downward is a signal of increasing selling pressure in the security.


3. Average Directional Index

The average directional index (ADX) is a trend indicator used to measure the strength and momentum of an existing trend. This indicator's main focus is not on the direction of the trend, but with the momentum. When the ADX is above 40, the trend is considered to have a lot of directional strength - either up or down, depending on the current direction of the trend. Extreme readings to the upside are considered to be quite rare compared to low readings. When the ADX indicator is below 20, the trend is considered to be weak or non-trending.