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Technical Analysis

Chart Indicators - Oscillators

**Compiilled by Jason Achjjiian Comp ed by Jason Ach an
**

2010 2010

Page 1 of 18

Oscillators Contents Indicators Oscillators AROON Up/Down Indicator …………………………………… AROON Oscillator ……………………………………………… Average True Range …………………………………………… Double Smoothed Stochastics ………………….…………….. Stochastic Fast …………………………………………………. Ichimoku Kinko Hyo ……………………………………………. Moving Average Convergence Divergence …………………. Momentum ……………………………………………………… Oscillator ………………………………………………………… Stochastic Slow ………………………………………………… Relative Momentum Index ……………………………………. Rate of Change ………………………………………………… Relative Strength Index ……………………………………….. TRIX Indicator …………………………………………………... Ultimate Oscillator ……………………………………………… Williams’ %R …………………………………………………….

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Credits: www.investopedia.com www.forexrealm.com www.stockcharts.com www.wikipedia.com

Page 2 of 18

Oscillators

**AROON Up/Down Indicator
**

What

The Aroon is a trending indicator used to measure if a security is in a trend and the magnitude of that trend. The indicator can also be used to identify when a new trend is set to begin. The indicator is comprised of two lines, an Aroon-up line and an Aroon-down line. The Aroon-up line measures the amount of time it has been since the highest price during the time period. The Aroondown line, on the other hand, measures the amount of time since the lowest price during the time period.

How

If a 100 period timeframe is used and it has been 25 periods since the highest price in the last 100 days the Aroon up value would currently be set at 75. If it has been 80 periods since the lowest period the Aroon down would be 20. The numbers computed for each of the up and down are then plotted as a line on the Aroon indicator between a range of zero and 100. (number of periods – number of periods since highest price) Aroon UP = number of periods (number of periods – number of periods since lowest price) Aroon DOWN = number of periods x 100 x 100

When

In general, the security is considered to be in an uptrend when the Aroon-up line is above 70 along with being above the Aroon-down line. The security is in a downtrend when the Aroon-down line is above 70 and also above the Aroon-up line. The trend is considered to be in a consolidation pattern when the two lines are near each other in between 70 and 30.

Page 3 of 18

**Oscillators AROON Oscillator
**

What

The Aroon is a trending indicator used to measure if a security is in a trend and the magnitude of that trend. The indicator can also be used to identify when a new trend is set to begin. The higher the value of the oscillator from the centerline point, the more upward strength there is in the security and the lower from the centerline the more downward pressure.

How

The Aroon oscillator simply plots the difference between the Aroon-up and -down lines. This line is plotted between a range of -100 and 100. The centerline at zero in the oscillator is considered to be a major signal line determining the trend.

When

Many traders will watch for a cross above the zero line to suggest the beginning of a new uptrend. Conversely, a cross below zero would indicate the start of a downtrend. Readings near zero suggest that a security may be trending sideways and that this period of consolidation could continue.

Page 4 of 18

**Oscillators Average True Range (ATR)
**

What

Developed by J. Welles Wilder and introduced in his book, New Concepts in Technical Trading Systems (1978), the Average True Range (ATR) indicator measures a security's volatility. As such, the indicator does not provide an indication of price direction or duration, simply the degree of price movement or volatility.

How

More specifically, the average true range is the (moving) average of the true range for a given period. The true range is the greatest of the following: • • • The difference between the current high and the current low The difference between the current high and the previous close The difference between the current low and the previous close

The average true range is then calculated by taking an average of the true ranges over a set number of previous periods. Care should be taken to use sufficient periods in the averaging process in order to obtain a suitable sample size, i.e. an average true range using only 3 periods would not provide a large enough sample to give you an accurate indication of the true range of the security’s price movement. A more useful period to use for the average true range would be 14

When

Extreme levels (both high and low) can mark turning points or the beginning of a move. As a volatility-based indicator like Bollinger Bands, the ATR cannot predict direction or duration, simply activity levels. Low levels indicate quiet trading (small ranges), and high levels indicate violent trading (large ranges). A prolonged period of low ATR readings might indicate consolidation and the beginning of a continuation move or reversal. High ATR readings usually result from a sharp advance or decline and are unlikely to be sustained for extended periods.

Page 5 of 18

**Oscillators Double Smoothed Stochastics (DSS)
**

What

DSS applies 2 smoothing EMAs of different lengths to a Stochastic Oscillator. DSS ranges from 0 to 100, like the standard Stochastic Oscillator.

How

Calculation of the DSS indicator is similar to Stochastics. The numerator: first the difference between the current close and the period low is formed, and this is then exponentially smoothed twice. The denominator is formed in the same way, but here the difference is calculated from the period high minus the period low. Numerator and denominator yield the quotient, and this value is multiplied by 100. DSS-BLAU[p1,p2,p3] = EMA[p3, EMA[p2, Close - LowestLow[p1]] 100 * EMA[p3, EMA[p2, HighestHigh[p1]LowestLow[p1]] The handling and the calculations of signals is similar to the Stochastic-Indictor. Parameters Period 1 (default 5) The period over which to consider highest highs and lowest lows. Period 2 (default 7) The period of the first smoothing Period 3 (default 3) The period of the second smoothing

When

The application of the DSS is comparable with that of the stochastic method. Accordingly, values above 70 or 80 must be regarded as overbought and values below 20 or 30 as oversold. A rise of the DSS above its center line should be viewed as bullish, and a fall of the DSS below its center line as bearish.

Page 6 of 18

**Oscillators Stochastic Fast
**

What

The fast stochastic oscillator compares two lines called the %K and %D lines to predict the possibility of an uptrend or a downtrend. In price charts, the %K line typically appears as a solid line, and the %D line appears as a dotted line. The fast stochastic oscillator can be used effectively to monitor daily, weekly or monthly periods. According to Martin J. Pring, George Lane developed the stochastic oscillator with the premise that during an uptrend, the closing price tends to rise. However, when the uptrend matures, price tends to close towards the bottom of the price range for the period. Likewise, in a downtrend, the reverse holds true. The difference between the fast and slow stochastic oscillators is the way that the %K and %D values are calculated. Slow stochastics are based on the moving averages values calculated for fast stochastics. As such, John J. Murphy writes that most traders favor slow stochastics because they tend to be more reliable.

How

For fast stochastics, the %K value is calculated as follows: %K = 100 [(C-L)/(H-L)] Where C is the latest closing price of the stock L is the lowest price of the stock for the period that you are monitoring. H is the highest price of the stock for the period that you are monitoring. For fast stochastics, the %D value is based on a 3-period SMA of the %K value. The %D value is calculated as follows: %D = 100 x (H-L) Where H is the sum of C-L in the last three periods L is the sum of H-L in the last three periods

When

• Extremes When the %K line nears the 100% or 0% line a powerful move is set to occur. Some technical analysts equate the extremes with overbought or oversold conditions, and that prices cannot get any higher or lower. However, Edwards and Magee identify that this is not true in all situations, and that the extremes instead represent the strength of a price move. Divergences A divergence is said to have occurred when the price and oscillator trend lines move in different directions. A price reversal may follow. Hinges Lane referred to a flattened %K or %D line as hinges. A hinge may indicate that the uptrend or downtrend has become exhausted, and that a price reversal may occur. Crossovers When the price has reached 80 or higher, and a divergence has occurred, a crossover is the sell signal. To summarize Lane, Robert W. Colby writes that "the sell signal is more reliable when %D has already turned down when %K crosses below %D"." Similarly, when the price has reached 20 or lower, and a divergence has occurred, a crossover becomes the buy signal. Robert W. Colby writes that "the buy signal is more reliable when %D has already up down when %K crosses above %D"."

• • •

Page 7 of 18

**Oscillators Ichimoku Kinko Hyo
**

What

Ichimoku is very similar to moving average studies. And like moving averages, buy and sell signals are given with the crossover technique. The Ichimoku chart consists of five lines. The calculation for four of these lines involves taking only the midpoints of previous highs and lows, similar to moving average studies. Yet even with this simplicity, the completed chart is able to present a clear perspective of the price action.

How

The five lines, as shown in Figure 1, are calculated as follows: 1) Tenkan-Sen = Conversion Line = (Highest High + Lowest Low) / 2, for the past 9 periods 2) Kijun-Sen = Base Line = (Highest High + Lowest Low) / 2, for the past 26 periods 3) Chikou Span = Lagging Span = Today's closing price plotted 26 periods behind 4) Senkou Span A = Leading Span A = (Tenkan-Sen + Kijun-Sen) / 2, plotted 26 periods ahead 5) Senkou Span B = Leading Span B = (Highest High + Lowest Low) / 2, for the past 52 periods, plotted 26 periods ahead Kumo = Cloud = Area between Senkou Span A and B Ichimoku uses three key time periods for its input parameters: 9, 26, and 52. When Ichimoku was created back in the 1930s, a trading week was 6 days long. These parameters, thus, represent one and a half week, one month, and two months, respectively. Now that the trading week is 5 days, one may want to modify the parameters to 7, 22, and 44.

When

• • A bullish signal is issued when the Tenkan-Sen (red line) crosses the Kijun-Sen (blue line) from below. Conversely, a bearish signal is issued when the Tenkan-Sen crosses the Kijun-Sen from above. Moreover, there are, in fact, different levels of strengths for the buy and sell signals of an Ichimoku chart. First, if there was a bullish crossover signal and the price, at that time, was trading above the Kumo (or cloud), this would be considered a very strong buy signal. In contrast, if there was a bearish crossover signal and the price, at that time, was trading below the Kumo, this would be considered a very strong sell signal. Secondly, a normal buy or sell signal would be issued if the price was trading within the Kumo when the crossover took place. Thirdly, a weak buy signal would be issued if there was a bullish crossover that occurred while the price was trading below the Kumo. On the other hand, a weak signal would be issued if there was a bearish crossover that occurred when the price was trading above the Kumo. Another striking feature of the Ichimoku charting technique is the identification of support and resistance levels. These levels can be predicted by the presence of the Kumo. The Kumo can also be used to help identify the prevailing trend of the market. If the price is above the Kumo, the prevailing trend is said to be up. And if the price is below the Kumo, the prevailing trend is said to be down. A final feature of Ichimoku is the Chikou Span. This line can also be used to determine the strength of the buy or sell signal. If the Chikou Span was below the closing price and a sell signal was issued, then the strength is with the sellers, otherwise it is a weak signal. Conversely, if there was a buy signal and the Chikou Span was above the price, then there is strength to the upside, otherwise it can be considered a weak buy signal. This feature can also be incorporated into the other signals. With Ichimoku charts, it is the Kumo that quantifies support and resistance levels and the Kumo that can be used to project these levels into the future. It's therefore important to note that (unlike its traditional counterparts) the support/resistance level given by the Kumo appears as a layer of varying thickness, with the thickness being related to prior market volatility.

•

•

•

Page 8 of 18

**Oscillators Moving Average Convergence Divergence (MACD)
**

What

MACD shows the difference between a fast and slow Exponential Moving Average (EMA) of closing prices. MACD is a trend following indicator, and is designed to identify trend changes. It’s generally not recommended for use in ranging markets conditions.

How

MACD = EMA (12) of price – EMA (26) of price A signal line (or trigger line) is then formed by smoothing this with a further EMA. The standard period for this is 9 days. Signal = EMA (9) of MACD The distance between the MACD and the signal line is often calculated and shown not as a line, but as a solid histogram style. Histogram = MACD – signal

When

Three types of trading signals are generated: • MACD line crossing the signal line • MACD line crossing zero • Divergence between price and MACD levels The signal line crossing is the usual trading rule. This is to buy when the MACD crosses up through the signal line, or sell when it crosses down through the signal line. These crossings may occur too frequently, and other tests may have to be applied. The histogram shows when a crossing occurs. When the MACD line crosses through zero on the histogram it is said that the MACD line has crossed the signal line. The histogram can also help visualizing when the two lines are coming together. Both may still be rising, but coming together, so a falling histogram suggests a crossover may be approaching. A crossing of the MACD line up through zero is interpreted as bullish, or down through zero as bearish. These crossings are of course simply the original EMA (12) line crossing up or down through the slower EMA (26) line. Positive divergence between MACD and price arises when price makes a new sell off low, but the MACD doesn't make a new low (i.e. it remains above where it fell to on that previous price low). This is interpreted as bullish, suggesting the downtrend may be nearly over. Negative divergence is the same thing when rising (i.e. price makes a new rally high, but MACD doesn't rise as high as before), this is interpreted as bearish. Divergence may be similarly interpreted on the price versus the histogram, where the new price levels are not confirmed by new histogram levels. Longer and sharper divergences (distinct peaks or troughs) are regarded as more significant than small shallow patterns in this case. It is recommended to look at a MACD on a weekly scale before looking at a daily scale to avoid making short term trades against the direction of the intermediate trend. Sometimes it is prudent to apply a price filter to the Bullish Moving Average Crossover to ensure that it will hold. An example of a price filter would be to buy if MACD breaks above the 9-day EMA and remains above for three days. The buy signal would then commence at the end of the third day.

Page 9 of 18

Oscillators Momentum

What

The momentum indicator is one of the simplest technical analysis equations available. It is a calculation of the difference between the current market price of a share (or other instrument) and the price of the same share a certain number of days ago.

How

M = P(n) - P(n-t) where n is the current period and t is a parameter determined by the user, the default is 10.

When

You can use the Momentum indicator as a trend-following oscillator similar to the MACD. Buy when the indicator bottoms and turns up and sell when the indicator peaks and turns down. If the Momentum indicator reaches extremely high or low values (relative to its historical values), you should assume a continuation of the current trend. For example, if the Momentum indicator reaches extremely high values and then turns down, you should assume prices will probably go still higher. In either case, only trade after prices confirm the signal generated by the indicator (e.g., if prices peak and turn down, wait for prices to begin to fall before selling). You can also use the Momentum indicator as a leading indicator. This method assumes that market tops are typically identified by a rapid price increase (when everyone expects prices to go higher) and that market bottoms typically end with rapid price declines (when everyone wants to get out). This is often the case, but it is also a broad generalization.

Page 10 of 18

Oscillators Oscillator

What

The Price Oscillator displays the difference between two moving averages of the security's price. The difference between the averages can be expressed in either points or percentages.

How

(Shorter Moving Average - Longer Moving Average) X 100 Longer Moving Average

When

Moving average analysis often generates buy signals when a short-term moving average (or the security's price) rises above a longer-term moving average. Conversely, sell signals are generated when a shorter-term moving average falls below a longer-term moving average. The Price Oscillator illustrates the cyclical (and often profitable) signals generated by one or two moving average systems.

Page 11 of 18

**Oscillators Stochastic Slow
**

What

Developed by George C. Lane in the late 1950s, the Stochastic Oscillator is a momentum indicator that shows the location of the current close relative to the high/low range over a set number of periods. Closing levels that are consistently near the top of the range indicate accumulation (buying pressure) and those near the bottom of the range indicate distribution (selling pressure).

How

%K (slow) = 3-day SMA of %K (fast) %D (slow) = y-day SMA of %K (slow)

When

Readings below 20 are considered oversold and readings above 80 are considered overbought. However, Lane did not believe that a reading above 80 was necessarily bearish or a reading below 20 bullish. A security can continue to rise after the Stochastic Oscillator has reached 80 and continue to fall after the Stochastic Oscillator has reached 20. Lane believed that some of the best signals occurred when the oscillator moved from overbought territory back below 80 and from oversold territory back above 20. Buy and sell signals can also be given when %K crosses above or below %D. However, crossover signals are quite frequent and can result in a lot of whipsaws. One of the most reliable signals is to wait for a divergence to develop from overbought or oversold levels. Once the oscillator reaches overbought levels, wait for a negative divergence to develop and then a cross below 80. This usually requires a double dip below 80 and the second dip results in the sell signal. For a buy signal, wait for a positive divergence to develop after the indicator moves below 20. This will usually require a trader to disregard the first break above 20. After the positive divergence forms, the second break above 20 confirms the divergence and a buy signal is given.

Page 12 of 18

**Oscillators Relative Momentum Index (RMI)
**

What

Roger Altman introduced the Relative Momentum Index as a sort of the Relative Strength Index (RSI) in Technical Analysis of Stocks & Commodities magazine of the February 1993. The Relative Momentum Index doesn't count up and down days from close to close as the RSI does, but it counts up and down days from the close relative to a close n-days ago (where n is not limited to 1 as required by the RSI).

How

Average up Momentum (over the period n) RM = Average Down Momentum (over the period n) RM RMI = 1 + RM

When

As an oscillator, the RMI exhibits the same strengths and weaknesses of other overbought / oversold indicators. During strong trending markets the RMI will remain at overbought or oversold levels for an extended period. However, during non-trending markets, the RMI tends to oscillate predictably between an overbought level of 70 to 90 and an oversold level of 10 to 30. Since the RMI is based on the RSI, many of the same interpretation methods can be applied. In fact, many of these "situations" are more clearly manifest with the RMI than they are with the RSI. Tops and Bottoms: The RMI usually tops above 70 and bottoms below 30. The RMI usually forms these tops and bottoms before the underlying price chart. Chart Formations: The RMI often forms chart patterns (such as head and shoulders or rising wedges) that may or may not be visible on the price chart. Failure Swings: (Also known as support or resistance penetrations or breakouts.) This is where the RMI surpasses a previous high (peak) or falls below a recent low (trough). Support and Resistance: The RMI shows, sometimes more clearly than the price chart, levels of support and resistance. Divergence: As discussed above, this occurs when the price makes a new high (or low) that is not confirmed by a new RMI high (or low). Note that a 20,1 parameter RMI is equivalent to a 20-period RSI. This is because the 1-day momentum parameter is calculating day-to-day price changes, which the standard RSI does by default. As the momentum parameter is increased, the oscillation range of the RMI becomes wider and the fluctuations become smoother.

Page 13 of 18

**Oscillators Rate of Change (ROC)
**

What

The Rate of Change (ROC) indicator is a very simple yet effective momentum oscillator that measures the percent change in price from one period to the next. The ROC calculation compares the current price with the price n periods ago. It is similar to the momentum indicator in that it directly measures market movement. The advantage of the percentage change calculation is that it is not sensitive to different absolute price levels. We are in fact measuring the percentage change, not the absolute change.

How

Rate of Change = ((Price c / Price c-n) * 100) - 100 Price c = close price Price c-n = the close price n number of periods prior n = a period specified by the user

When

The indicator is an oscillating indicator and can therefore be used as an overbought and oversold type indicator as it peaks. Traders must exercise caution however as a trending market will result in the indicator remaining in an overbought or oversold state for an inordinate amount of time, depending on the direction of the trend. It is therefore suggested that this indicator be used in conjunction with another indicator that will determine if and when the market is actually trending or trading sideways. There are a few ways that traders use this indicator. One is as an overbought/oversold indicator. Another is to use it simple as an indication of change of direction. Yet another is to use the movement through the zero line as a trigger to buy and sell. That is to buy when the indicator moves from below the zero line to above the zero line and sell when the indicator moves from positive to negative.

Page 14 of 18

**Oscillators Relative Strength Index (RSI)
**

What

The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to 100. It takes a single parameter, the number of time periods to use in the calculation.

How

RS = EMA (N) of U EMA (N) of D

Where U = close of today – close of yesterday And D = close of yesterday – close of today N is the number of periods – usually 14 EMA is an Exponential Moving Average This is converted to Relative Strength Index between 0 and 100 100 RSI = 100 – 1 + RS

When

The RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued. The principle is that when there's a high proportion of daily movement in one direction it suggests an extreme, and prices are likely to reverse. Levels 80 and 20 are also used, or may be varied according to market conditions. Divergence in the RSI indicator with respect to price will often indicate that a turn in price is imminent. Similarly failure swings provide an indication that the market may be ready to turn. This occurs when the market makes a new peak high (low) but the indicator fails to make a new peak high (low).

Page 15 of 18

**Oscillators TRIX Indicator
**

What

TRIX is a momentum indicator that displays the percent rate-of-change of a triple exponentially smoothed moving average of a security's closing price. Oscillating around a zero line, TRIX is designed to filter out stock movements that are insignificant to the larger trend of the stock. The user selects a number of periods (such as 15) with which to create the moving average, and those cycles that are shorter than that period are filtered out. The TRIX is a leading indicator and can be used to anticipate turning points in a trend through its divergence with the security price. Likewise, it is common to plot a moving average with a smaller period (such as 9) and use it as a "signal line" to anticipate where the TRIX is heading. TRIX line crossovers with its "signal line" can be used as buy/sell signals as well.

How

To calculate the indicator TRIX, you must first select the period for the formation of an exponential moving average of closing prices. For the 15-day period, the calculation would be as follows: 1. Computes the 15-day exponential sliding average closing price; 2. Computes the 15-day rolling average of the exponential moving average, calculated in item 1; 3. Computes the 15-day rolling average of the exponential moving average, calculated in Clause 2 Now we have a triple exponentially smoothed sliding average closing prices, which considerably reduces the variability. 4. Finally, the calculated 1-day moving average percentage change, calculated in paragraph 3

When

Since TRIX measures the rate-of-change of closing prices, a positive TRIX value is interpreted as a steady rise in the closing price of a security. A positive TRIX is thus akin to a positive trending price, allowing the indicator to act as a buy signal whenever it crosses up above the zero line. Similarly, crossing below the zero line suggests the price is tending to close down at the end of each period, which can be a sell signal. The "signal line" mentioned earlier is also a useful buy/sell indicator. Since the signal line period is shorter, a cross above it suggests that recent stock prices are closing much higher. A buy signal is triggered when TRIX crosses above its signal line, and a sell signal is triggered when TRIX crosses below its signal line. This method can generate false signals during sideways price movements, so it works best when prices are trending. It is therefore wise to use TRIX in tandem with other indicators for confirmation.

Page 16 of 18

**Oscillators Ultimate Oscillator
**

What

Developed by Larry Williams and first described in a 1985 article for Technical Analysis of Stocks and Commodities magazine, the "Ultimate" Oscillator combines a stock's price action during three different time frames into one bounded oscillator. Values range from 0 to 100 with 50 as the center line. Oversold territory exists below 30 and overbought territory extends from 70 to 100.

How

Calculate Today's "True Low (TL)". TL = the lower of today's low or yesterday's close. Calculate Today's "Buying Pressure (BP)". BP = Today's close - Today's TL. Calculate Today's "True Range (TR)". TR = the higher of 1.) Today's High - Today's Low; 2.) Today's High - Yesterday's Close; 3.) Yesterday's Close - Today's Low. Calculate BPSum1, BPSum2, and BPSum3 by adding up all of the BPs for each of the three specified time frames. Calculate TRSum1, TRSum2, and TRSum3 by adding up all of the TR's for each of the three specified time frames. The Raw Ultimate Oscillator (RawUO) is equal to: 4 x (BPSum1 / TRSum1) + 2 x (BPSum2 / TRSum2) + (BPSum3 / TRSum3) The Final Ultimate Oscillator is equal to: (RawUO / (4 + 2 + 1)) x 100

When

Williams had specific criteria for a buy or sell signal. A buy signal occurs when, • • • Bullish divergence between price and the oscillator is observed, meaning prices make new lows but the oscillator doesn't During the divergence the oscillator has fallen below 30. The oscillator then rises above its high during the divergence, ie. the high in between the two lows. The buy trigger is the rise through that high.

The position is closed when the oscillator rises above 70 (considered overbought), or a rise above 50 but then a fallback through 45. A sell signal is generated conversely on a bearish divergence above level 70, to be subsequently closed out below 30 (as oversold).

Page 17 of 18

Oscillators Williams’ %R

What

Developed by Larry Williams, Williams %R is a momentum indicator that works much like the Stochastic Oscillator. It is especially popular for measuring overbought and oversold levels. The oscillator is on a negative scale, from -100 (lowest) up to 0 (highest). Such a scale is a little unusual and is sometimes found altered (by adding 100), but needn't cause any confusion. A value of -100 is the close today at the lowest low of the past N days, and 0 is a close today at the highest high of the past N days.

How

%R = [(highest high over ‘n’ periods - close)/(highest high over ‘n’ periods - lowest low over ‘n’ periods)] * -100 Typically, Williams %R is calculated using 10 periods and can be used on intraday, daily, weekly or monthly data. The time frame and number of periods will likely vary according to desired sensitivity and the characteristics of the individual security.

When

Williams used a 10 trading day period and considered values below -80 as oversold and above -20 as overbought. But they were not to be traded directly, instead his rule to buy an oversold was • • • %R reaches -100%. Five trading days pass since -100% was last reached %R rises above -95% or -85%.

or conversely to sell an overbought condition • • • %R reaches 0%. Five trading days pass since 0% was last reached %R falls below -5% or -15%.

The timeframe can be changed for either more sensitive or smoother results. The more sensitive you make it, though, the more false signals you will get. The "close-position within a range" in the %R indicator is the same as the %K stochastic oscillator, on a different scale.

Chart used is spot gold Date sampled for all indicators for easy comparison is between 08-Oct-2008 to 22-Jul-2009 displayed as a daily candlestick chart (excluding volume charts as spot gold doesn’t display volume, volume charts are Google off the NASDAQ stock exchange, stock code: GOOG, P&F chart is Aussie SPI Futures, code: AP and Coppock Indicator chart is the US S&P500 index)

Page 18 of 18

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