Market analysis guide

We hope that our articles will help you to learn how to forecast which way a market is expected to
trend.

It is up to you what to choose: Fundamental Analysis, Technical Analysis, Elliot Wave theory,
Candlesticks, Tomas Demark Theory, Chaos Theory or any other. Whatever you choose try to get as
much experience as possible and never stop studying.

 Technical Analysis guide
 Bill William's Chaos Theory

Technical Analysis
Overview:
 Principles of Technical Analysis
 Dow Theory

Trend Analysis:
 Trend Lines and Trend Channels
 Support/Resistance Levels
 Fibonacci Retracement

Reversal Chart Patterns:
 Head and Shoulders
 Triple and Double Tops and Bottoms
 V-Reversal Pattern

Continuation Chart Patterns:
 Triangle
 Flag
 Pennant
 Wedge
 Rectangle

Trend Indicators:
 Moving Average
 Envelopes and Bollinger Bands
 Moving Average Convergence Divergence (MACD)
 Moving Average of Oscillator (OsMA)
 Parabolic Time Price System
 Average Directional Movement Index (ADX)

Oscillators:
 Bullish Divergence / Bearish Convergence
 Momentum Indicator
 Commodity Channel Index (CCI)
 Relative Strength Index (RSI)
 Stochastic Oscillator
 Force Index
 Relative Vigor Index (RVI)
 Williams’ Percent Range (R)
 Average True Range (ATR)
 Ichimoku Kinko Hyo

Volume Indicators:
 Overview
 On Balance Volume (OBV)
 Money Flow Index (MFI)

An Example of Trading Strategy:
 Accumulation / Distribution
 Elder Ray Indicator

 Principles of Technical Analysis
History
Among various methods financial analysts utilize for forecasting the markets, the two most common
methods are fundamental and technical analyses.

All in all, different technical theories can be viewed as puzzle stones, the combination of which should
lead us to the ultimate goal of technical analysis - the set-up of the highest probability scenario for a
specific market direction.

The roots of modern-day technical analysis stem from the Dow Theory, developed around 1900 by
Charles H. Dow (1851-1902). His famous market philosophy, price action analysis and other
techniques have been around for over 100 years, yet even in today's volatile and technology-driven
markets, the basic components of Dow Theory still remain useful.

In a series of stunning editorials for the Wall Street Journal at the turn of the century, Dow laid out the
foundations of his own theory on the market. Among them were:

 The market is always considered as having three movements, all occuring at
the same time - primary, secondary and intraday.
 Averages discount everything.
 The market reflects all available information.

Everything there is to know is already reflected in the markets through the price level. Prices represent
the total sum of hopes, fears and expectations of all market participants. Interest rate movements,
earnings expectations, revenue projections, presidential elections, product initiatives and everything
else is already priced into the market. The unexpected occurs, but usually this affects only the short-
term trend. The primary trend remains unaffected.

Dow developed a conception of confirmation which is now better known as a divergence. Traders use it
to compare price movements to oscillator movements to define the strength of the prevailing trend.

Dow placed the emphasis on the importance of trading volume to predict price rebounds and trend
direction. For example, if the market is oversold, selling will be accompanied by low volume, whereas
a rally will result in an increasing volume.

Robert Rhea spent a lot of time on market statistics. He was the first technical analyst who defined
that divergence should have the narrowest range so, that it could be considered as a well-defined
secondary movement.

Richard Schabacker (1902-1938) is considered to be a grandfather of technical analysis who laid the
foundations for modern pattern analysis.

He classified tools which helped technical analysts not only to forecast future market movements, but
also to foresee when the prevailing trend would finish.

He was the first to classify common chart patterns, develop the theory of price gaps, formalise the use
of trend lines and prove the importance of support and resistance levels.

Richard Schabacker’s most popular tool is Bar charts. The vast majority of chart patterns fall into two
main groups: reversal and continuation. Reversal patterns indicate the trend may change and may be
broken down into top and bottom formations. Continuation patterns indicate that the trend takes a
pause and resumes its previous direction after a while.

Richard Wyckoff traded stocks and bonds in the early and mid 1900's. His subject of interest was
logic behind market actions. He developed a methodology which concentrated on the Volume-Price,
Point and Figure and the process of sifting and ranking analyses. He developed such patterns as
"Swing" and "Upthrust" which provide a trader with the key touch points as they describe test levels
and false breakouts, which are produced when the price fluctuates within a trading range. Richard
Wyckoff also introduced an index comprised of five selected shares (the most sensitive ones) to predict
market reversals in the early stages.

The next logical step of the Dow Theory was Elliott Wave Theory, which was proposed in the early
1930s by R.N. Elliot (1871-1948).

Principles of Technical Analysis
Technical analysis predominantly uses charts to forecast future price movements. Nowadays it is not
necessary to draw charts on paper as the process is automated by specially designed computer
programs. If you want to get more information on such a trading platform, please refer to the page
regarding MetaTrader 4.

There are three sources of information in technical analysis: price, volume and open interest (applicable
only to derivatives contracts such as futures and options).

THe principles of technical analysis are the following:

 Price discounts everything. Price is affected by economic, political and other
factors, and all information is already reflected in it. Technical analysis utilizes
the information captured by the price to interpret what the market is saying
with the purpose of forming a view on the future.
 Price movements are not totally random, or prices trend. The main purpose of
the charts is to define a trend at an early stage and to trade in accordance with
its direction.
 History repeats itself. The techniques which were effective in the past can be
still effective to forecast future price movements.

 Dow Theory
Initially, the principles behind Dow Theory were used only for American indices created by Charles
Dow: Transportation and Industrial. Most of them however can be successfully applied to the Foreign
Exchange market.

 Indices discount everything. According to Charles Dow any factor which
influences demand and supply will be reflected in the index. These factors
cannot be foreseen but they are nevertheless taken into account by the market
and shown in the price action of the index.

 There are three movements on the market. Uptrend is characterised by the fact
that every following top is higher than the previous one and every next bottom
is higher than the previous one. Downtrend is characterised by the fact that
every following top is lower than the previous one and every bottom is lower
than the preceding one. When the market is in the flat position every next
move (up or down) is approximately at the same level as the preceding one.

 Dow classified market trends as follows:
- primary trend (a broad trend that can last upto several years);
- secondary trend (lasts between three weeks and three months and is
considered as a correcting trend to the primary one. Interim rebounds are one-
two thirds (or even half) of the range formed during the primary trend);
- daily trend (a short-term movement within the secondary trend, which has
very little long-term forecasting value).
 Another classification was suggested by Thomas DeMark:
- short-term trend (if the price has moved less than 5%);
- mid-term trend (if more than 5% but less than 15%); long-term trend (if more
than 15%).
 DeMark designed a forecasting method to predict the beginning of a trend,
both mid-term and long-term. The method is based on specially designed
coefficients.
 The primary trend has three phases. During the first phase all unfavourable
market information has been discounted by the market and the far-sighted and
better informed traders start to buy. The second phase starts when the traders
who do technical analysis enter the market. Once all economic data becomes
more favourable, the third, final phase begins, which is characterised by high
activity on the market supported by the mass media and optimistic economic
forecasts in the newspapers and on TV. Despite the positive sentiment, the
final phase is the first sign that the prevailing trend is about to end.
 Indices must confirm each other in order for the signal to have authority
(referred to Industrial and Rail (or Transport) indices). Charles Dow said that
any significant uptrend or downtrend signal on the market must be considered
together in the Industrial and Rail indices. If we applied this principle now on
the basis of modern technical analysis, it would mean that a signal from one
technical indicator must be confirmed by a signal from another technical
indicator.
 Trade volume must confirm the prevailing trend. If prices move in accordance
with the prevailing trend, it increases the volume and inversely, when there is
a rebound, volume decreases.
 The primary trend remains intact until a change in that trend has been given by
the theory. The last major signal remains in force until a new signal develops.
Many analysts believe that a bull market must always be moving to new highs.
However, the market can undergo extended periods of sideways or lackluster
trading without the primary trend changing. If the last major signal under the
theory is bullish, the primary bull market trend remains in force until a bear
market signal is given.

Obviously a trend line created by joining only two points will be less effective than a trend line created by three or more points. markets tend to consolidate prior to a rapid price rise or fall. Uptrend line in MetaTrader Uptrend means that every next bottom is above the previous one.prices rise. Prices do not only rise or fall but most of the time they actually move in narrow ranges.Trend Lines and Trend Channels Trend Lines A trend is a general direction of the price. First of all. the trend line is drawn between bottom points.  Flat (or "sideways") – prices are in a narrow range. in accordance with the Dow Theory we can therefore divide trends into three types:  Bull (or "uptrend") . As a general rule. .  Trend Analysis . and every next high is above the previous one. so in this case. it is very important to determine if the market is uptrending or downtrending (this can be done with the help of trend indicators and trend lines or channels) and if the prevailing trend is strong or weak (with the help of oscillators and charts patterns). So.  Bear (or "downtrend") – prices fall.

Any trend (bullish or bearish) must be confirmed by trade volume. . so in this case.Downtrend line in MetaTrader Downtrend means that every next bottom is lower than the previous bottom and every next high is lower than the previous high. Once the situation changes and trade volume during rebounds becomes greater than that during the trend price movement. then trade volume decreases. When prices move in accordance with the prevailing trend. as there is no confirmation of the trend reversal). the trend line is created by using the highest points. the trade volume increases. when prices move against the prevailing trend (rebound). it is a serious signal that the trend may not be so strong (but it is not the signal to open the opposite position.

click and hold the left mouse button to draw the line to the second point.Flat trend line in MetaTrader A Flat Market means that every next bottom or high is at the same level as that of the previous bottom or high. release the button. the trend line is drawn by joining both bottoms and highs. Once a trend line has been broken. Right-click on the highlighted object to enable the context menu: With the help of a trend line you can identify the moment when the trend will change. If you wish to highlight the trend line. Once you have done this. . chances are that the trend has just changed its direction or its strength has started to diminish. In this case. just double click it. In order to draw a trend line in MetaTrader 4 press the button on the "Line studies" toolbar: Line studies toolbar Point the mouse cursor to the first trend line point.

draw a parallel straight line next to the trend line: one of them joins price chart highs.  Do not try to open positions against the prevailing trend hoping that the trend is weak and that the reversal point is not far away. Tomas Demark. Tomas Demark made his contribution to the theory of trend lines. To create a channel line. Channel Lines Channel lines are a significant part of trend analysis. abbreviation). In most cases price sweeps through your Stop Loss order and only subsequently does the trend reverse.shown below are the most popular:  Trend is your friend .do not open positions against the prevailing trend. a trend is rooted in two critical points through which the trend is drawn. Trend line breakout is one of the most important signals that the trend may reverse. According to his theory. and the price continues to move in the direction of the current trend. A Stop Loss order should be placed below an uptrend line (or above a downtrend line). Channel lines are like boundaries for price fluctuations. These points are defined at the basis of extreme points.Sometimes the trend line is broken by a bar low or high. There are many methods to define if a breakout is true . the other price chart lows: Channel lines are used: . He called these points TD-lines (his name.  The primary trend remains intact until a change in that trend has been given.

Support / Resistance Levels Support and Resistance levels are patterns of classical technical analysis. A support level is a starting point of an uptrend. Take Profit order should be placed above the lower line and Stop Loss above the upper line. All trend (channel) lines. To point out where to fix profits and losses. In order to create a channel line in MetaTrader 4 double click the left mouse button on the trend line. it becomes the resistance level: .  Trend Analysis . Then release the Ctrl button. press and hold the Ctrl button and drag the newly created parallel line to its place on the chart. Bulls (buyers) start to resist against further price decreases thus giving it support. If there is a downtrend channel. After several attempts the price may break the support level. reversal and continuation chart patterns are only combinations of support and resistance levels. Once the support level is broken. It is commonly thought that when the price falls down to the support level. If there is an uptrend channel. and is actually a tangent to the minimum price. Take Profit order may be placed under the upper line and Stop Loss order under the lower line.  If the price does not touch the upper line of the uptrend (lower line of the downtrend) this signifies that the prevailing trend is weak. This explains why in many cases the price will bounce back and start rising after having reached a support level.

2003 (after the breakout): support level becomes resistance The Resistance level is a tangent to the highest price: .Support level Here is an example of when a support level became resistance in September 14. 2003: September 14.

Fibonacci Retracement Price correction (retracement) is a short-term. Support and resistance levels are easy to create and are a highly effective method for forecasting price behaviour. 2. 34. once the price reaches this level it will not get any higher. 3. Prices almost never just rise during the uptrend and fall during the downtrend. 8. the price can rise and then retrace for a while or vice-versa. please refer to the criteria outlined for trend lines. 1. 5.618 times the preceding number. 21. After several attempts the price may break the resistance level. It is therefore important to know how to define the levels at which the trend will resume after a short retracement. For example. Even within the same trend. These numbers possess an intriguing number of interrelationships. such as the fact that any given number is approximately 1. 1. 144 etc. Once the resistance level is broken it becomes the support level. Technical analysis has a correction index which uses Fibonacci numbers. and any given number is approximately 0. 89. anti-trend price movement.Resistance level Generally. 13. The most profitable and less risky positions are positions opened at the end of the retracement. In order to define if the support/resistance level breakout is true.  Trend Analysis . . 55. The Fibonacci sequence is a series of numbers that takes the previous number and adds it to the current number to get the next number in the sequence.618 times the following number.

the correction is about 0. .Experienced traders know that in a fast market. Fibonacci Retracement in MetaTrader 4 To estimate if a Fibonacci Retracement breakout is true. In a market with average price movements. Maximum correction is 0. please refer to the methods used to estimate the trend line breakouts. which indicates that the trend is rather weak. Fibonacci Retracement should now appear on the chart. correction is about half the price range movement. click and hold the left mouse button to drag the cursor to the uptrend high (downtrend low) and release the button. then click the right mouse button to enable the context menu where further settings can be changed.618. Highlight it by double-clicking.382 of the price range movement. In order to draw a Fibonacci Retracement in MetaTrader 4 press the button of the "Line Studies" toolbar: Line Studies toolbar Drag the cursor to the uptrend low (downtrend high).

When you track price movements you may often see that these movements have predictable configurations.  Reversal Chart Patterns . Let's begin with chart reversal patterns . "Head and Shoulders" pattern appears at the end of a bullish trend: Head and Shoulders pattern "Inverted Head and Shoulders" is the first sign that a bearish trend is about to end: Inverted Head and Shoulders pattern Inverted chart patterns have distinct highs (bottoms). Pattern characteristics: . Chart patterns are tools used to predict trend reversal or trend continuation."Head and Shoulders" and "Inverted Head and Shoulders". Head Line is a trend line which joins two bottoms between highs (two highs between two bottoms if the pattern is inverted).Head and Shoulders Price chart analysis starts with chart patterns. which are called chart patterns. "Head and Shoulders" is the most recognizable reversal pattern.

 Reversal Chart Patterns . The best time to make a deal is when the level has been broken and the price rebounds to the Head Line.Triple and Double Tops and Bottoms Other important reversal patterns are:  "Triple Top"  "Triple Bottom"  "Double Top"  "Double Bottom" Here are some sketch examples of price movements with "Triple Top" and "Triple Bottom" patterns: "Triple Bottom" pattern: .  If on the bullish trend the Right Shoulder of the "Head and Shoulders" pattern is higher than the left one. it is time to open a position. then the higher the Right Shoulder the stronger the signal. the volume pattern must also meet fairly strict requirements.  If on the bearish trend there is an "Inverted Head and Shoulders" pattern. Once the Head Line has been broken. then this makes the signal stronger.  In order to define if the pattern is valid.

Double Top patterns looks like this: There are a lot of false signals among Triple and especially Double Tops and Bottoms.  V-Reversal Pattern Mostl V-Reversal patterns (or Reversal Spikes) are formed subsequent to a rapid previous trend: . price and oscillators convergence / divergence."Double Top" and "Double Bottom" patterns are seen on the charts more frequently: "Double Top" and "Double Bottom" are weaker reversal signals than "Triple Top / Bottom" and "Head and Shoulders". so it is important to make a parallel analysis of market volume.

The only possible solution is to break through the trend line. It is difficult to find the right moment to enter the market if there is a formation of a spike. Triangles are powerful continuation patterns: . not a sign of a forthcoming reversal. The best strategy in this event is to be square (no open positions). and support and resistance levels are indefinable.There are many gaps on the chart. Continuation patterns typically take less time to form than reversal patterns. This pattern is frequently seen on the charts of GBP/USD:  Continuation Chart Patterns o Triangle Continuation patterns indicate that price sluggishness is only a pause in the prevailing trend.

The top of the triangle will be the important support/resistance level. It is sometimes followed by a pull back to the trend line (if it was an upside breakout then it would be the support level. if downside breakout it would be the resistance level). the subsequent price action will be weak and difficut to predict. The point at which they cross is called top: There must be at least four reversal points in order for a triangle to be recognized. six: three peaks and three troughs). but there may be more (for example. The fewer price fluctuations inside the triangle. In most cases the breakout occurs in the middle to three-quarters of the triangle width. If within three- quarters of the triangle width the breakout has not occurred. please refer to the methods previously used to test trend lines breakouts. The formation ends when a trend line is broken. To estimate if the triangle line breakout is true. the more chances that trading volume will decrease (this is a common rule for most continuation patterns). Ascending triangle is a type of symmetrical triangle: .There are four different types of triangles:  symmetrical  ascending  descending  expanding Symmetrical triangle consists of two converging trend lines (upper line goes lower and lower line goes higher).

This is a bullish formation as in this scenario buyers are more active than sellers. signaling a reversal. When an ascending triangle develops. ascending and descending triangles: . Even if the market is bearish this chart pattern should be considered as bullish. Ascending triangles are usually formed as a continuation pattern in an uptrend. Descending triangle is a bearish formation – a mirror image of an ascending triangle: How to analyze symmetrical.Its upper trend line is horizontal whereas the lower one is upward sloping. but sometimes they can be found at the bottom of a downtrend. it is usually a good chance for an upside breakout to occur.

 If the price penetrates the triangle upwards the price may continue to rise. the bearish trend resumes.  Typically. this means that the pattern formation is about to end. as a rule. and prices may continue to drift out to the apex and beyond. sometimes it may be at some level of the second one or even a little bit lower. volume is heavy at the beginning and it contracts during the formation of a triangle. the third top is higher than the previous two tops. and that is a signal to open a Sell position.  If the price penetrates the triangle downwards then the price may continue to fall.  If the pattern angle is up-directed the price may move higher.  The price continues moving in the direction of the breakout for at least a range equal to the triangle's height.  If prices remain within the triangle beyond the three-quarter point. After this has occurred. In this case the pattern resembles the Head and Shoulders chart pattern with a downward Head Line. An expanding triangle (more often appears at highs) consists of three gradually rising highs and two gradually falling bottoms: When the downward price movement crosses the level of the second bottom. the triangle begins to lose its potency. Once the signal has been given prices may pull back up to half of the range they have moved downward.  Triangle top will be the support/resistance level.  If the pattern angle is down-directed the price may move lower. Although. .  A Classic triangle has five lines (three downward and two upward or vice versa). It increases again during the breakout.

The formation takes from 5 to 15 bars.  Continuation Chart Patterns o Flag Flags are usually preceded by a sharp advance or decline. so after the breakout the price may move the same range as it had moved before the pattern. . The pattern is considered to be in the middle of the trend. The flag looks like a rectangle directed against the prevailing trend: The formation of this pattern is accompanied by a decrease in volume followed by a sharp increase after the breakout.

. 5 to 15 bars are required to form this model. in the middle of the trend.  Continuation Chart Patterns o Pennant The pennant resembles a small symmetrical triangle: The pattern occurs after a rapid trend. While the pennant is forming the volume decreases and then increases sharply after the breakout. as a rule.

Breakout tends to happen between two thirds and one half of the way through the pattern. both the pattern's upper and lower edges are either going up (bearish formation) or down (bullish formation). .  Continuation Chart Patterns o Wedge The wedge is a small triangle inclined against the trend: Typically. The chance of a reversal are great if the pattern inclines along with the trend. like the flag.

The time period of any moving average defines how much it will be smoothed. 21. 89.  A too long MA period will often lag short-term price movements.  For sideways trends it is better to use longer time periods. 13. the less sensitive the MA is to price movements. 55. 89. 34. After the breakout. Recommended Moving Averages time frames Chart period Moving Average Weekly 8.  If the MA period is too short. 55. then it is defined as a 5-period MA. when a Moving Average is calculated by adding the closing prices for the last 5 bars. It is a smoothed correlation between currency rates and time periods. 55. the price usually moves in a range no less than the rectangle's height. Further edges of the rectangle will become support/resistance levels. 89 4 hours 8. 21 Daily 8. 144 There are three types of Moving Averages:  Simple Moving Average (SMA)  Weighted Moving Average (WMA)  Exponential Moving Average (EMA) Formula for the Simple Moving Average (SMA): . 144 15 minutes 34. For example.  Continuation Chart Patterns o Rectangle The rectangle looks like the Triple Top / Bottom pattern: In order to define what kind of pattern has been formed ("Rectangle" or "Triple Top / Bottom") you can use oscillatory and volume analyses. 55. 144 1 hour 8. 34. then it will have too many false signals. 13.  Trend Indicators o Moving Average Moving Average (MA) is the average of prices (more often the closing prices) over a specified number of periods. When you select a period for the moving average (table shown below) keep in mind the following:  The greater the time period.

 K = 2 / (n + 1).price of i-bar.previous time period. There is a high possibility of a reversal. . Then specify a period for the Moving Average and select its type (the "MA Method" field) and then press the OK button. then this is a signal to buy. Formula for the Weighted Moving Average (WMA): where  P . where  t . then it is time to sell. This enables Moving Average on the chart.EMA period. Often MA is weighted by volume. How to analyze Moving Averages:  Find Moving Average and price chart cross-point.  W . The main advantage of the Exponential Moving Average (EMA) is that it discounts both prices of the previous and current periods. In order to create a Moving Average in MetaTrader 4 use the "Insert->Indicators ->Trend->Moving Average" menu sequence. Every subsequent value becomes more significant.where  P .EMA(t .  n .  n .MA period. Formula for the Exponential Moving Average (EMA): EMA(t) = EMA(t . If the price line crosses the Moving Average line from below.  Note that Moving Average usually moves in the direction of the prevailing trend. If it crosses from above.1)].  t -1 .current time period.weight of i-bar.price of i-bar.  Find points which occur after Moving Average tops or bottoms. This enables the window with the Moving Average parameters.1) + (K x [Price(t) .

% above the moving average. L – lower border. Bollinger Bands A Bollinger Band is constructed by placing upper and lower bands around a moving average – the band width is not constant but instead proportional to the mean square divergence from the moving average over the specified period of time. The percentage ("u" and "d") should be set so that about 95% of price activity is contained within the envelope and 5% outside it.  Find points where the divergence between Moving Average and price is widest.  Trend Indicators o Envelopes and Bollinger Bands Envelopes are formed with upper border U and lower border L. it is time to sell. the decision to enter/exit the market is made when the price rises above upper Bollinger Band resistance or falls below lower Bollinger Band support. u . Based on the Bollinger Band analysis. If it breaks through the upper band and then comes back just below the upper band. If it breaks through the lower band and then comes back just above the lower band. n) where U – upper border. SMA (P. it can often create false alarms. Moving Average signals are more effective on a trend market and less effective when the market is flat. The formula is: U = ( 1 + u / 100 ) x SMA (P. n) L = ( 1 . Bollinger Bands measure volatility: . If you do not have other confirmations it is not recommended to open positions against the Moving Average's direction.d / 100 ) x SMA (P. If the price breaks through upper and lower bands and then comes back inside then it is considered a good time to enter the market. The indicator will then be adequate to the market balance and all prices will come back to the envelope after they exit it.% below the moving average. n) – moving average. However if the price breaks through the upper or lower band and then comes back right away it may be a false signal. d . it is time to buy. As MA is a lagging indicator.

whereas in a bearish market it is the resistance level. Typically. moving average is the support level. During periods of low volatility bands are narrow. In a bullish market. MACD is the difference between the fast 12-day exponential moving average (fast EMA) and the slow 26-day exponential moving average (slow EMA). When the market is more volatile and volume is high the bands widen. In order to add the indicator on the chart in MetaTrader 4 follow the «Insert -> Indicators -> Trend -> Bollinger Bands» menu Bollinger Bands  Trend Indicators o Moving Average Convergence Divergence Some of the disadvantages of moving averages can be avoided by using the Moving Average Convergence Divergence (MACD). It indicates that the prevailing trend is strong and likely to continue or a new trend has just started. this is plotted with the 9-day EMA of the indicator itself. SIGNAL = EMA(9) [MACD]. It is a period of consolidation to continue the prevailing trend or just before the reversal of the trend. .

 p – price. for example. . It may indicate that the prevailing bearish trend is weak and reversal may be possible. However. Bearish convergence occurs when a new low is not confirmed by a new low of the MACD.EMA(26) [p]. Bullish divergence occurs when a new high is not confirmed by a new high of the MACD. before opening a position against the trend. However it is better not to make a decision based only on this factor and bear in mind that if MACD is close to the zero line this indicates that the prevailing trend is likely to continue. It may indicate that the prevailing bullish trend is weak and about to reverse. the breakout of the trend line. check other signals.where  MACD = EMA(12) [p] .

 SIGNAL line and price bullish divergence/bearish convergence – a strong sign that the prevailing trend is weak. and MACD histogram crosses the slow line (SIGNAL) from below.  If MACD is above zero and there is no bullish divergence and MACD histogram crosses the slow line (SIGNAL) from above.Trend Indicators: MACD Bearish Convergence In order to add Moving Average Convergence Divergence (MACD) to the chart use the “Insert -> Indicators -> Oscillators -> MACD” menu sequence. In MetaTrader 4 MACD is represented as a histogram (MACD) and a signal line (SIGNAL). MACD signals:  If MACD is below the zero line then trend is bearish.  If MACD is below zero and there is no bearish convergence. . if it is above it then the trend is bullish. then there is a greater chance of a downside price rebound. then there is a greater chance of an upside price rebound.

1) . The closing price (parabolic) is calculated for each bar using the following formula: Long positions: SAR (i) = ACCELERATION * (HIGH (i . It helps to define the direction of the prevailing trend and the moment to close positions opened during the reversal. In order to add the indicator in MetaTrader 4 use «Insert -> Indicators -> Trend -> Parabolic SAR» menu sequence: . When the price crosses Parabolic SAR.20 + n x 0.20. where n – the number of new tops (bottoms). SAR is below the price chart.1) — low of the previous period. In MetaTrader 4. If a trend is bullish. and a SIGNAL (signal line) is used as a moving average: OSMA = MACD-SIGNAL  Trend Indicators o Parabolic Time Price System The Parabolic indicator (sometimes referred to as SAR) was developed by Welles Wilder in 1976 and was originally called "stop and reverse". and then it is calculated as follows: o AF = 0.SAR (i .1)) .1) Where:  SAR (i .1)) + SAR (i .SAR (i . for the first bar it is usually 0.1) Short positions: SAR (i) = ACCELERATION * (LOW (i .  Trend Indicators o Moving Average of Oscillator (OsMA) Moving Average of Oscillator (OsMA) is generally calculated as the difference between the oscillator and the moving average on the oscillator. SAR is above the price chart.1) — parabolic value on the preceding bar. MACD is used as an oscillator. o HIGH (i . The actual point at which the system is reversed is the high or the low of the previous period.SAR (i .1) . The indicator is effective only in a trending market.  ACCELERATION – acceleration factor. if it is bearish.1) — high of the previous period. o LOW (i . the indicator reverses and its value becomes opposite to the price.02.

If parabolic moves higher. hence. ADX represents two opposite +/-DM and ADX lines: The first goes in the direction of the price movement (+DM). . after this.  Trend Indicators o Average Directional Movement Index (ADX) Average Directional Movement Index (ADX) was developed and described in detail by Welles Wilder in his book "New concepts in technical trading systems". Average Directional Movement Index (ADX) shows if there is a trend on the market and what potential it has. The second goes in the opposite direction (-DM).  If there is a significant divergence between the price chart and the parabolic.Parabolic signals:  When the price chart crosses Parabolic SAR it may be a reversal signal or may indicate temporary consolidation. they tend to contract and the number of false signals increases. then their convergence may happen very soon. it is considered as a classic signal to initiate a position.  Parabolic SAR and trend direction are the same. most of the signals will be true.  When the indicator has completely formed and the Parabolic SAR moves parallel to the price chart. then the trend is bullish and vice versa.

the greater the value of ADX. +DM . . then the trend is very weak. and vice versa. so the more divergence between +/- DM lines. To define if the trend is weak. and vice versa. . In order to add the ADX indicator to the chart in MetaTrader 4 use the "Insert -> Indicators ->Trend -> Average Directional Movement Index" menu sequence: Average Directional Movement Index (ADX) signals (table shown below):  Intersection with the extremum lines or reversal at high-low.  If +DM line is above -DM line.The third (ADX) is the absolute difference between +/-DM lines.it is a very strong signal.  Determine when to open a position in a flat market.  +DM and -DM lines intersection precedes a new trend or strengthens the prevailing one . /. then the trend is bullish.  If lines diverge then the ADX value increases and the trend becomes stronger. use bullish divergence / bearish convergence.  If the ADX is below 20. ADX Trend Buy/Sell -DM Very low Weak - Falling Loses strength - Higher Buy Rises Becomes stronger Lower Sell Forms local Higher Buy A new one low Lower Sell Chances for a reversal are Take profit on some open Very high great positions Forms local Market is overbought / high oversold  Oscillators o Bullish Divergence / Bearish Convergence Main principles of oscillators analysis Oscillators are used to:  Determine the strength of the prevailing trend.

Bullish divergence occurs when a new price high is not confirmed by a new oscillator high.e. i.e the next high is above the preceding one and the next oscillator high is lower than the preceding one. This implies that the uptrend is weak: Bearish convergence occurs when a new bottom is not confirmed by a new oscillator bottom. i. This signals that the downtrend is weak: . every next bottom is lower than the preceding one and every next oscillator bottom is higher than the preceding one.

It is important to be more careful with oscillators when the trend is strong. When the oscillator penetrates the overbought (oversold) area for the second time and then quickly goes back forming a bullish divergence/bearish convergence.Both bullish divergence and bearish convergence. Bullish divergence Here the price is above and oscillator is below: . often false oscillator signals indicate the strength of the trend. there is a high chance that the trend will weaken. Trend is valid until reversal signals appear. show that it is better to refrain from opening a position against the weakening trend. if it is a downtrend. When the trend is strong. Where the market is flat. if it is below 30 then it is in the oversold area. they are in the oversold area. the oscillator can be in the overbought (oversold) area for a long time and then it can exit the area but the trend will still be valid. however. If the indicator is above 70 then it is in the overbought area. it may be time to open a position once the oscillator leaves the overbought (oversold) area. In the figures above Relative Strength Index (RSI) is used as an oscillator. Confirmation of the signal appears when the price is close to the upper (lower) border of the trading range. If it is an uptrend then most of the time oscillators are in the overbought area. Overbought and oversold levels have to be defined for each indicator individually.

The price may fall if the oscillator is in the middle. Strong signal Trend reversal or price consolidation followed by a trend reversal. Both a price increase and price consolidation are possible if the oscillator is in the middle.Medium signal The price may rise if the oscillator is within the lower range. Bearish convergence Here the price is above and oscillator is below: Medium signal . Price consolidation is possible if the oscillator is close to the upper border. Medium signal Trend may strengthen if the oscillator is close to the lower border.

The price may rise if the oscillator is within the lower range.The price may fall if the oscillator is within the upper range. The price may stabilize if the oscillator is in the middle. Both a price decrease and consolidation is possible if the oscillator is in the middle. Strong signal Trend reversal or price consolidation followed by trend reversal. Parallel lines Here the price is above and oscillator is below: Medium signal . Medium signal The trend may strengthen if the oscillator is within the upper range.

 if the indicator is around 100.the main signal of the weakness of the prevailing trend. All negative and positive values are displayed on the chart with a zero line in the middle. If for example we take a period of 5. then the Momentum oscillator will be defined as the difference between the current close and the close 5 bars earlier.  bullish divergence / bearish convergence.Strong uptrend Strong signal Trend may reverse soon. it signifies a flat market.  Oscillators o Momentum Indicator The Momentum indicator value is defined as the difference between price levels after a specified time period. exit from the overbought (oversold) areas is a signal to sell (buy).  if above 100 then the market is bullish.  in a flat market. then the market is bearish.  CLOSE (i . In MetaTrader 4. the Momentum indicator is defined not as the difference. Medium signal Strong downtrend. .n) — close n bars before.n) * 100 Where:  CLOSE (i) — current bar close. but the correlation between the current price and the price n periods before: MOMENTUM = CLOSE (i) / CLOSE (i . Momentum signals:  if the indicator is below 100.

N)  4) Calculate simple moving average of the absolute D values over n periods: SMA (D.SMA (TP. N) = SUM (TP. N) / N  3) Subtract SMA(TP. Bullish divergence / bearish convergence is the main Momentum signal: Main Momentum signal  Oscillators o Commodity Channel Index (CCI) Commodity Channel Index (CCI) measures the price deviation of a particular instrument from its average traded price. N) = SUM (D. low and close of each bar and divide it by 3: TP = (HIGH + LOW + CLOSE) / 3  2) Calculate the simple moving average of the typical prices over n-periods: SMA (TP. A very high index value (more than +100) indicates that the price is in the overbought area.In order to add Momentum indicator to the active chart in MetaTrader 4. and a very low value (lower than -100) indicates that the price is in the oversold territory. Commodity Channel Index (CCI) calculations:  1) Find a typical price: add high. use the "Insert -> Indicators -> Oscillators -> Momentum" menu sequence. N) from the typical prices ( TP) of each preceding n periods: D = TP . N) / N .

the number of periods used for the calculation.simple moving average.  Under flat conditions exit from the overbought / oversold territory is a sell (buy) signal. N) * 0. N) by 0.  N . Commodity Channel Index (CCI) is the most sensitive one.  SUM . In order to add the Commodity Channel Index (CCI) indicator in MetaTrader 4.015  6) Divide M by D: CCI = M / D Where:  HIGH .  LOW . hence divergence / convergence is not always a signal of the weakness of the trend. Examples of CCI's bullish divergence / bearish convergence . use the "Insert ->Indicators -> Trend -> Commodity Channel Index" menu sequence.bar high.  5) Multiply SMA (D. but always quite accurately defines the beginning of the correction.  SMA .total amount. In distinction from other oscillators.close price.  CLOSE .015: M = SMA (D.bar low. Commodity Channel Index (CCI) signals:  Bullish divergence / bearish convergence is the main signal.

Relative Strength Index (RSI) signals:  If the indicator is below the 50 line. support / resistance levels. it is considered to be the most popular oscillator. for example. Relative Strength Index (RSI) formula: RSI = 100 .average value of the negative price changes over a period.  Under flat conditions exit from the overbought (oversold) territory is a signal to sell (buy).  If above the 50 level .  D . chart reversal and continuation patterns.(100 / (1 + U / D)) Where:  U .  Oscillators o Relative Strength Index (RSI) Relative Strength Index (RSI) was developed by J. The most frequently used time periods are 8 and 14.bullish. The figure below. and oversold if it is below the 30 level.  Bullish divergence / bearish convergence – the main signal of the trend weakness.  If the indicator is around the 50 line it signals that the market is flat. Nowadays. then the market is considered to be bearish. RSI indicator is considered overbought if it is above the 70 level. shows that the trend line on RSI being broken several bars before the analogical line on the price chart: .  Different types of the trend analysis can be used to analyze Relative Strength Index (RSI): trend lines.average value of the positive price changes over a period. Welles Wilder in 1978.

use the "Insert -> Indicators -> Oscillators -> Relative Strength Index" menu sequence.  Oscillators o Stochastic Oscillator The aim of the Stochastic Oscillator is to determine price behaviour and reversals by monitoring close prices within recent highs and lows. If the quotes tend to move downwards.  MAX (HIGH (%K)) – the highest top within the number of %K periods.  MIN (LOW (%K)) – the lowest bottom within the number of %K periods.In order to add the Relative Strength Index (RSI) indicator in Metatrader 4. .MIN (LOW (%K))) * 100 Where:  CLOSE – current close price. the close is usually near the bottom. N) Where:  N – smoothing period. Stochastic Oscillator consists of two %K and %D lines calculated as follows: %K = (CLOSE .MIN (LOW (%K))) / (MAX (HIGH (%K)) .  MA – moving average. %D = MA (%K. The method is based on the observation that when prices are rising their close levels tend to be closer to the top.

the %K line smoothing method (exponential. The window with the settings will appear: Stochastic Oscillator Settings  %K period .  %D period . It is used for %D calculation. linear weighted) used for %D calculation.  MA method .the degree of %K line inner smoothing. Once the Stochastic Oscillator parameters have been set and the OK button has been pressed.  Slowdown . Value 1 gives a quick Stochastic Oscillator and value 3 – a slow one.the moving average period along the %K line. the indicator appears under the price chart: . smoothed. simple.To add Stochastic indicator in MetaTrader 4 use the "Insert -> Indicators -> Oscillators -> Stochastic Oscillator» menu sequence.number of bars used for Stochastic Oscillator calculation.

 The greater the volume.  The greater the range. .1) . the greater the force. stronger price movement may resume. exponential or linear weighted.CLOSE (i .any moving average: simple.the volume of the current bar. Stochastic signals from these areas are considered to be more significant.Stochastic Oscillator analysis The %K line is usually displayed as a solid line and %D as a dashed line.close price of the previous bar. Its main function is to measure bullish forces during each upward movement and bearish forces during each downward movement.smoothing period. range and volume:  If the close of the current bar is higher than that of the previous bar. the force is positive.  CLOSE (i) .  CLOSE (i . Force Index formula: RAW FORCE INDEX = VOLUME (i) * (CLOSE (i) .close price of the current bar.  If the current close is lower than the previous one.  In a flat market. These are several basics of the Stochastic Oscillator analysis:  Bullish divergence / bearish convergence is the main signal that shows that the current trend is weak. exit from the overbought (oversold) area is a signal to sell (to buy).  Oscillators o Force Index Force Index oscillator was developed by Alexander Elder. At the level of 80% and 20% the overbought areas (higher than 80%) and oversold areas (lower than 20%) are indicated. the force is negative. The force of each market movement is defined by its trend.1)) FORCE INDEX = MA (RAW FORCE INDEX. N) Where:  VOLUME (i) .  Two sequential opposite intersections of %K and %D lines mean that the first signal was premature and that the previous.  If both lines move in the same direction then they move in the trend direction. the greater the force.  If the solid line (%K) crosses the dashed line (%D) from below this is a signal to buy.  N .  MA . if the solid line (%K) crosses the dashed line (%D) from above this is a signal to sell.

open price.the main signal pointing to the weakness of the current trend. and in a bearish market the closing price is usually below the opening price.the lowest price.  CLOSE .  LOW .g.close price.  A good moment to open a sell / buy position is the crossing of the RVI line by the signal line from above/below once the bullish divergence / bearish convergence has appeared on the chart.the highest price.  HIGH .  Oscillators o Relative Vigor Index (RVI) The Relative Vigor Index (RVI) calculation is based on the idea that in a rising market the closing price is usually higher than the opening price.  In a flat market an exit from the overbought / oversold area is a signal to sell / buy. To eliminate occasional price fluctuations (so called "noise") the Relative Vigor Index (RVI) oscillator is smoothed by the 10-period simple moving average. The main Force Index oscillator signal is a bullish divergence / bearish convergence: Force Index  To add Force Index in MetaTrader 4 use the "Insert -> Indicators -> Oscillators -> Force Index" menu sequence. .Smoothing by a short moving average (2 period) helps to find favourable moments to open and close positions. A signal line is also formed as a 4-period moving average on the oscillator values. To add Relative Vigor Index in MetaTrader 4 use the "Insert -> Indicators -> Oscillators -> Relative Vigor Index" menu sequence.LOW) Where:  OPEN . 13-period) the Force Index oscillator reveals if the trend has changed or not. If smoothing is made by a long moving period (e.OPEN) / (HIGH . To normalize the index the price fluctuation is divided by the maximum price range within the bar: Relative Vigor Index (RVI) formula: RVI = (CLOSE . The basic signals of Relative Vigor Index (RVI) are:  Bullish divergence / bearish convergence .

n)) .n)) .the highest top over the previous n periods.  MIN (LOW (i .CLOSE (i)) / (MAX (HIGH (i .the lowest bottom over the previous n periods. Williams’ Percent Range (%R) oscillator signals:  bullish divergence / bearish convergence – the main signals that point to the weakness of the current trend. whereas values in the range from 0% to 20% signify an overbought condition. The formula to calculate Williams’ Percent Range oscillator is similar to the one used to calculate the Stochastic Oscillator: %R = (MAX (HIGH (i .the current close price.  in a flat market an exit from the overbought / oversold area is a signal to sell / buy.How to use Relative Vigor Index (RVI)  Oscillator o Williams’ Percent Range (R) The values of the Williams’ Percent Range (%R) oscillator lie between 0 and 100.n)) .  MAX (HIGH (i . If the oscillator is between 80% to 100%. .MIN (LOW (i .n))) * 100 Where:  CLOSE (i) .n)) . it denotes an oversold condition.

True Range is the greatest among three following volumes:  the difference between the top and the bottom of the current bar.  the difference between the close of the previous bar and the low of the current bar. To add Average True Range index in MetaTrader 4 use the "Insert -> Indicators -> Oscillators -> Average True Range" menu sequence: .To add Williams’ Percent Range index in MetaTrader 4 use the "Insert -> Indicators -> Oscillators -> Williams’ Percent Range. %R" menu sequence. Average True Range (ATR) is the moving average of the true range values. Wilder in his book "New concepts of the technical trading systems".  the difference between the close of the previous bar and the top of the current bar. Williams’ Percent Range index  Oscillators o Average True Range (ATR) Average True Range (ATR) is a market volatility index developed and described by W.

the average price level over the second time period. the greater the possibility for trend reversal. The Ichimoku Kinko Hyo indicator consists of five lines:  Tenkan-sen .  Senkou Span B / Down Kumo . shifted backward for the length equal to the second time period. shifted forward for the length equal to the second time period.  Chinkou Span . .current bar close.midway between Tenkan-sen and Kijun-sen.the average price level.The Average True Range (ATR) Average True Range (ATR) oscillator analysis basics:  The greater the oscillator value.  Senkou Span A / Up Kumo . (High+Low)/2. who wrote under the name of "Ichimoku Sanjin". calculated over the first time period.  Kijun-sen .the average price level over the third time period.  Oscillator o Ichimoku Kinko Hyo The Ichimoku Kinko Hyo charting technique was developed by the Japanese analyst Hosoda.  The smaller the value the weaker the trend. shifted forward for the length equal to the second time period.

 If the price is within the cloud then the market is flat.  If Tenkan-sen line moves sideways then it is a signal for a flat market.  If the price stays above the cloud then there is an upward trend.Ichimoku Kinko Hyo The "cloud" known as the "Kumo". Ichimoku Kinko Hyo indicator signals:  When the price exits the cloud downward it is a sell signal. In order to add Ichimoku Kinko Hyo indicator in MetaTrader 4. use "Insert ->Indicators- >Oscillators->Ichimoku Kinko Hyo" menu sequence. upward – buy signal: .  If it stays below the cloud then there is a downward trend. is the space between "Senkou Span A" and "Senkou Span B".

Exit from the cloud  The price ranges before and after the cloud are often the same. if it crosses from above it is a sell signal: .  When the price and Chinkou Span (green line) intersect it is a signal to place a trade. If Chinkou Span crosses the price line from below it is a buy signal.

and vice versa: Tenkan-sen and Kijun-sen cross  When the price is inside the cloud it tends to move in the direction of Tenkan- sen line (red line).Price and Chinkou Span cross  If Tenkan-sen (red line) crosses Kijun-sen (blue line) from above it is a sell signal. If the Tenkan-sen line is directed downwards then the price ends to move to the lower edge of the cloud and vice versa: .

 sometimes gradual decreasing in volume is accompanied by rapid price movements. but when the American session opens and the European session still continues trading. and with intra-day trading volumes dependant on the time of day (during the Japanese session trading volume is at its lowest levels. As daily FOREX trading volumes are pretty much at the same levels.  when volume increases it means that there is more interest. so it may strengthen the prevailing trend or a new trend may appear. it is more advisable to use volume indicators only for short time periods (less .e.  volume highs signal that it may be time for a reversal. so it may be time for a reversal or price consolidation.  Tenkan-sen and Kijun-sen cross  Kijun-sen (blue line) and cloud edges are very strong resistance/support levels  Volume Indicators: o Overview Absolute volume values on the foreign exchange market are unattainable even for government funded statistical organisations. so in order to estimate buying or selling pressure in FOREX we use tick volume. absolute foreign exchange market liquidity tick volume values follow the number of total trades in absolute units. i. volume is at the highest levels). It is worth mentioning that in practice. The main principles of using volume indicators:  when volume decreases it means that there is less interest. the total number of quotes for the specified time period.

and which cover price behavior within one trading session (Japanese.  VOLUME (i) .current bar volume. European or American).  OBV (i-l) .  If a new price bottom is confirmed by a new On Balance Volume (OBV) indicator bottom it means that the bearish trend is strong. then: OBV (i)= OBV (i-l) Where:  OBV (i) .  Volume Indicators o On Balance Volume (OBV) On Balance Volume (OBV) was developed by Joseph Granville.  Bullish divergence (bearish convergence) warns of the weakness of the downtrend (uptrend).VOLUME (i)  3) If the current close price is at the same level as the preceding one. In order to add On Balance Volume (OBV) indicator in MetaTrader 4 use the "Insert -> Indicators -> Volume -> On Balance Volume" menu sequence.On Balance Volume (OBV) indicator value in the preceding period. Cumulative value is calculated by adding and deducting volume depending on the movements of the closing price. On Balance Volume (OBV) indicator On Balance Volume (OBV) formula:  1) If the current close price is above the preceding one. Note that On Balance Volume (OBV) indicator interpretation is based on the direction of the curve and not actual values:  If a new price high is confirmed by a new On Balance Volume (OBV) indicator high it means that the bullish trend is strong. This indicator compares volume to price movements.On Balance Volume (OBV) indicator current value.  A breakout of the trend line drawn on the On Balance Volume (OBV) indicator warns of a breakout of the trend line on the price chart.than an hour). Final bar volume is positive if the bar close price is higher than the close price of the preceding bar and vice versa. then: OBV (i)= OBV (i-l). . then: OBV (i)= OBV (i-l)+VOLUME (i)  2) If the current close price is below the preceding one.

 Volume Indicators o Money Flow Index (MFI) Money Flow Index (MFI) is similar to the Relative Strength Index (RSI). .( 100 / ( 1 + MR ) ) Where:  HIGH . If "Typical Price" is lower than the preceding one then "Money Flow" is negative.current bar volume. It is calculated as follows:  Define a "Typical Price" (TP) for the specified period: TP = ( HIGH + LOW + CLOSE ) / 3  Calculate "Money Flow" value (MF): MF = TP x VOLUME If "Typical Price" is higher than the preceding one then "Money Flow" is positive.  CLOSE . Use the "Insert -> Indicators -> Volume -> Money Flow Index" menu sequence to add Money Flow Index (MFI) indicator in MetaTrader 4. Overbought territory: 80-100. "Negative Money Flow" is the total value of all negative money flows for the specified time period.current bar close price. oversold territory: 0-20.current bar bottom.  bullish divergence warns of the weakness of the uptrend: Money Flow Index  bearish convergence warns of the weakness of the downtrend.current bar top.  VOLUME .  if a new price bottom is confirmed by an indicator bottom it means that the bearish trend is strong. Money Flow Index (MFI) signals:  if a new price high is confirmed by a new indicator high it means that the bullish trend is strong.  "Money Ratio" (MR) is calculated as follows: MR = POSITIVE MONEY FLOW / NEGATIVE MONEY FLOW  Then using "Money Ratio" calculate "Money Flow Index": MFI = 100 .  Calculate "Positive Money Flow" and "Negative Money Flow": "Positive Money Flow" is the total value of all positive money flows for the specified time period.  LOW .

N) .bar bottom. then the value of the indicator is unchanged: Accumulation / Distribution (A/D) indicator formula:  A/D = SUM (((CLOSE-LOW)-(HIGH-CLOSE))x VOLUME/(HIGH- LOW).  LOW .the amount for N periods.  N . If the closing price is halfway between the bar high and low..bar top. If the bar close is near to its high.a closing price.Accumulation / Distribution The Accumulation/Distribution indicator tracks the relationship between price and volume.  HIGH . If the bar close is near its low. ..the number of periods which are used for calculations.N) Where:  CLOSE . then part of volume is added to the Accumulation/Distribution indicator value (the closer the price the more percentage of volume is added).  SUM (. The basic premise behind the indicator is that higher-volume moves in price are given greater emphasis than lower-volume moves (over the specified period of time).An Example of Trading Strategy  Volume Indicators. then part of volume is deducted from Accumulation/Distribution (the closer the price the more percentage of volume is deducted)..

Accumulation / Distribution (A/D) indicator is similar in most aspects to the On Balance Volume (OBV) indicator but it is more complex. Elder Ray indicator The calculation is based on the following principles:  Price is an agreement between sellers.  Bullish divergence warns of the weakness of the uptrend.  Bearish convergence warns of the weakness of the downtrend. buyers and square traders. When the moving average rises there is a bullish trend.  A breakout of the trend line drawn on Accumulation / Distribution (A/D) indicator warns of the high possibility of a breakout of the trend line on the price chart.  The lowest price is the maximum of the bearish force over a specified period of time.  A chart with a histogram of the Bullish Force. In order to add Accumulation/Distribution (A/D) indicator to the chart in MetaTrader 4 use the “Insert- >Indicators->Volumes->Accumulation Distribution” menu sequence. Elder Ray consists of three horizontal screens:  A chart with a 13-period exponential moving average. Accumulation / Distribution indicator signals are also similar to those of the OBV indicator:  If a new price high is confirmed by a new Accumulation / Distribution (A/D) indicator high this means that the bullish trend is strong.  A chart with a histogram of the Bearish Force.  If a new price bottom is confirmed by a new Accumulation / Distribution (A/D) bottom this means that the bearish trend is strong. An Example of Trading Strategy Elder Ray IndicatorElder Ray indicator is a mechanical trading system which measures buying and selling pressure over a specified period of time.  The Moving Average is the averaged price agreement. Bullish / Bearish Force is calculated as follows:  Bull Power = High-EMA  Bear Power= Low-EMA where . When the moving average falls there is a bearish trend.  The highest price is the maximum of the bullish force over a specified period of time.

exponential moving average. .  Bullish divergence is another strong signal. Moving Average shows the direction of a deal.  If new price highs are confirmed by new Bullish Force indicator highs. Elder Ray Sell signals  Moving average moves downward and Bullish Force is above zero. the bears are weak. then it is a good confirmation of the bullish trend.the maximum price over the period. then the Bullish Force is above zero.  Low .  Bearish trend is confirmed if the price lows and Bearish Force indicator lows move downward in parallel.  High . and when the price approaches the moving average it is time to enter the market. so the bullish trend is confirmed. In this case.the minimum price over the period.  EMA . bulls are weak. If the price low is below the moving average this means that the downtrend is very strong. Elder Ray Buy signals  Moving average rises and Bullish Force indicator is below zero.  Bearish convergence is another strong signal. If the price top is higher than the moving average. The best time to buy is when the Bearish Force first falls below zero and then immediately rises. Otherwise.