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Technical Indicators: Average True Range

The document defines and describes the usage of various technical indicators used to analyze financial markets including Average True Range, Bollinger Bands, Linear Regression, Moving Average Convergence/Divergence (MACD), Momentum, Moving Average, Relative Strength Index (RSI), Standard Deviation, and Stochastic. Each indicator is used to identify trends, signal buy/sell opportunities, and detect changes in market momentum or volatility. The indicators are interpreted based on principles like crossings of lines, divergences between price and indicator movements, and levels like overbought/oversold zones.

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93 views13 pages

Technical Indicators: Average True Range

The document defines and describes the usage of various technical indicators used to analyze financial markets including Average True Range, Bollinger Bands, Linear Regression, Moving Average Convergence/Divergence (MACD), Momentum, Moving Average, Relative Strength Index (RSI), Standard Deviation, and Stochastic. Each indicator is used to identify trends, signal buy/sell opportunities, and detect changes in market momentum or volatility. The indicators are interpreted based on principles like crossings of lines, divergences between price and indicator movements, and levels like overbought/oversold zones.

Uploaded by

arifzakir
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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Technical Indicators

Average True Range Bollinger Bands Linear Regression Moving Average Convergence/Divergence (MACD) Momentum Moving Average Parabolic SAR Relative Strength Index (RSI) Standard Deviation Stochastic

Average True Range


Average True Range - is an indicator that measures volatility of the market. Methods of usage are similar to the methods of usage of Standard Deviation

Value of this indicator is usually high if prices change sharply. If the value of this indicator isn't high so the prices stay stable. Before the significant rise/fall of prices the value of this indicator is usually low.

Bollinger Bands
Usage of Bollinger Bands is based on the fact that prices usually remain within the limits of upper and lower borders. The variable width of Bollinger Bands is caused by volatility of prices Methods of usage:

Sharp changes of the price take place after the line narrows. If prices cross the borders of the line the current trend would stay. When lines are narrow: The price movement started from one border usually reaches the other border.

Linear Regression
Linear Regression is a statistical method of following the trend. Its results are usually close to the Moving average & methods of usage are similar. Methods of usage

The direction of the indicator shows whether bullish or bearish trend is in the market at the moment. The Crossing of the indicator and the price chart confirms the trends change. It only confirms because the change of this indicator is late in comparison with a price change.

Moving Average Convergence/Divergence (MACD)


Moving Average Convergence/Divergence (MACD) is an indicator that follows the trend. It consists of Exponential Moving Average 12 periods (MACD is green), Exponential Moving Average 26 periods (Signal is navy) and histogram (red) which shows the difference between them. MACD is used when prices vary in the price corridor. Methods of usage

When MACD is lower than Signal - you should sell. When MACD is higher than Signal - you should buy. MACD crossings with zero line up/down are being used as signals for buy/sell.

Momentum
Momentum is the rate of acceleration of a currency's rates. Methods of usage

As an oscillator that follows the trend: a signal for buy occurs when the indicator reaches the bottom of downward curve and then starts growing; a signal for sell occurs when the indicator the top of upward curve and then starts declining. As a forerunning indicator: the proximity of the market to top/bottom is accompanied by the drastic surge of the indicator, following by decline in the value of the indicator while the rates continue to rise/fall (or move horizontally). In such case divergence takes place.

Moving Average
Moving Average shows the average price in the period of time defined by trader. Moving Average of different types (Simple, Exponential, Weighted) differ from each other only in terms of weight coefficients, which are assigned to the last data. Methods of usage of Moving Average of different types are absolutely similar:

The direction of the indicator shows whether bullish or bearish trend is in the market at the moment. The Crossing of the indicator and the price chart confirms the trends change. It only confirms because the change of this indicator is late in comparison with a price change

Moving Average
Moving Average shows the average price in the period of time defined by trader. Moving Average of different types (Simple, Exponential, Weighted) differ from each other only in terms of weight coefficients, which are assigned to the last data. Methods of usage of Moving Average of different types are absolutely similar:

The direction of the indicator shows whether bullish or bearish trend is in the market at the moment. The Crossing of the indicator and the price chart confirms the trends change. It only confirms because the change of this indicator is late in comparison with a price change

Relative Strength Index (RSI)


Relative Strength Index (RSI) is a price-following oscillator that ranges between 0 and 100. There are 3 distinct zones in the chart of this indicator: Upper overbought zone. from 70% to 100%; Lower oversold zone. from 0% to 30%; Middle zone. from 30% to 70%. Methods of usage

If the top of RSI was formed in the upper zone (overbought zone 'Right' 70%) and then the indicator returned to the middle zone, the price would move in the same direction If the bottom of the RSI was formed in the lower zone (oversold zone 'Left' 30%) and then the indicator returned to the middle zone, the price would move in the same direction. Divergence: when price reaches a new minimum/maximum, but is not confirmed by a new minimum/maximum on the RSI chart, the price correction takes place in favor of the direction of RSI.

Note: On the RSI chart levels of support/resistance and reversal patterns are sometimes visible more distinctly than on the price chart.

Standard Deviation
Standard Deviation is a statistical measure of volatility. It's usually used not as a separate indicator but as a component of other indicators. Methods of usage

Value of this indicator is usually high if prices change sharply. If the value of this indicator isn't high so the prices stay stable. Before the significant rise/fall of prices of this indicator is usually low.

Stochastic
This oscillator consists of two lines: main line is called %K (%K is Fuchsia color) and the secondary is called %D (%D is Navy Color). In the main line (%K) fluctuations are usually more distinct than in the secondary line (%D), because %D - is moving average for the line %K. Stochastic indicator is measured on a scale from 0% to 100%. Methods of usage

If both lines have topped in the upper zone (above 80% mark) and then the indicator returned to the middle zone, the rate would move in the same direction. If both lines have bottomed in the lower zone (below 20% mark) and then the indicator returned to the middle zone, the rate would move in the same direction. Divergence: if rates produce series of new minimum/maximum and the oscillator doesn't then some rate correction is possible in the direction of the oscillator's movement.

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