Technical Indicators

A.
Understanding Technical Indicators

 RSI(14)
Stands for Relative Strength Index. It is a momentum indicator used to identify
overbought or oversold condition in the stock.Time period generally considered is 14
days. RSI reading below 25 is interpreted as oversold. RSI between 25 & 45 is
interpreted as a bearish condition. RSI between 45 & 55 is interpreted as a neutral
condition.RSI between 55 & 75 is interpreted as a bullish condition. RSI reading greater
than 75 is interpreted as an overbought.
 (12,26,9)
Stands for Moving Average Convergence Divergence.It is a trend following momentum
indicator. For calculation three moving averages are taken which are 9 day EMA, 12 day
EMA & 26 day EMA. The 26 day EMA subtracted from the 12 day EMA alongwith the 9
day EMA which is the "signal line", together give buy/sell signals. If the MACD is above 0
and crosses above the signal line it is considered to be a bullish signal. If the MACD is
below 0 and crosses below the signal line it is considered to be a bearish signal.
 Stochastic(20,3)
It is a momentum indicator. It shows the location of the close relative to the high-low
range over a set number of periods. Time period generally considered is 20 days.
Readings above 80 indicate a security is overbought. Readings between 55 & 80 indicate
Bullish condition. Readings between 45 & 55 indicate Neutral condition.Readings
between 20 & 45 indicate Bearish condition.Readings below 20 indicate a security is
oversold.
 ROC(20)
It stands for Rate of Change. It is a momentum oscillator that takes the current price and
compares it to a price "n" periods ago. Time period generally considered is 20 days. The
ROC is plotted against a zero line that differentiates positive and negative values. Value
above 0 indicates Bullish condition. Value below 0 indicates Bearish condition. Value
equal to 0 indicates Neutral condition.
 CCI(20)
It stands for Commodity Channel Index. It gives an indication of trend change & also the
momentum within the trend. Time period generally considered is 20 days.CCI is relatively
high when prices are far above their average & relatively low when prices are far below
their average. The CCI typically oscillates above and below a zero line, above zero line it
enters into positive territory & below zero into negative territory. Normal oscillations will
occur within the range of +200 and −200. Readings above 200 imply an overbought
condition, while readings below −200 imply an oversold condition. CCI between -200 & -
50 implies a bearish condition. CCI between -50 & 50 implies neutral condition. CCI
between 50 & 200 implies bullish condition.
 Williamson%R(14)
It is a momentum indicator which indicates the current closing price of the stock in
relation to its high & low of the past 14 days. Its purpose is to tell whether a stock is
trading near the high or the low, or somewhere in between of its recent trading range.
Readings between 0 and -20 imply an overbought condition, readings between -20 to -50
implies bulish condition, readings between -50 to -80 implies bearish condition and
readings between -80 to -100 imply oversold position.
 MFI(14)
It stands for Money Flow Index. It is a momentum indicator that measures the flow of
money into and out of a security. Time period generally considered is 14 days. MFI
considers both price & volume to measure buying and selling pressure. Very high MFI
that begins to fall below a reading of 80 while the underlying security continues to climb is
a reversal signal to the downside. Conversely, a very low MFI reading that climbs above
a reading of 20 while the underlying security continues to sell off is a reversal signal to
the upside.
 ATR(14)
Stands for Average True Range. It is a volatility indicator which indicates the degree of
price volatility at an absolute level compared with its 9 SMA. Time period generally
considered is 14 days. If the value is greater than its 9 SMA it considered to be Highly
Volatile. If the value is less than equal to its 9 SMA it is considered to be Less Volatile. It
does not provide any indication of price trend.
 ADX(14)
It stands for Average Directional Index. It indicates only the trend strength. It is a lagging
indicator; that is, a trend must have established itself before the ADX will generate a
signal. Time period generally considered is 14 days. When the ADX line is rising, trend
strength is increasing, and the price moves in the direction of the trend. When the line is
falling, trend strength is decreasing, and the price enters a period of retracement or
consolidation.A falling ADX line only means that the trend strength is weakening, but it
usually does not mean the trend is reversing.
 Bollinger Band(20,2)
Stands for Bollinger Bands. It is a technical analysis tool defined by a set of lines plotted
two standard deviations (positively and negatively) away from a simple moving
average.The upper and lower bands are typically 2 standard deviations +/- from a 20-day
simple moving average.It is believed the closer the prices move to the upper band, the
more overbought the market, and the closer the prices move to the lower band, the more
oversold the market. Approximately 90% of price action occurs between the two bands.
Any breakout above or below the bands is a major event. The breakout is not a trading
signal.
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A.

Understanding Technical Indicators

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