Moving averages are indicators that smooth price data by creating an average price over a period of time. Simple moving averages (SMAs) are straightforward averages of closing prices, while exponential moving averages (EMAs) apply more weight to recent prices. SMAs represent a true average but lag price changes, while EMAs turn sooner but are less smooth. Moving averages of different periods provide short, medium, and long-term perspectives on trends and support/resistance. Volume indicators like on-balance volume (OBV) and accumulation/distribution lines use volume to confirm price trends and identify divergences.

1. Mastering
Technical Analysis
Summarized by: Haven

2. SMA Calculation
Moving Average
A simple moving average is formed by computing the average
price of a security over a specific number of periods. Most
moving averages are based on closing prices. A 5-day simple
moving average is the five day sum of closing prices divided by
five.
EMA Calculation
Exponential moving averages reduce the lag by applying more
weight to recent prices.
Simple Versus Exponential
Even though there are clear differences between simple moving averages and exponential moving averages, one is not
necessarily better than the other. Exponential moving averages have less lag and are therefore more sensitive to recent
prices - and recent price changes. Exponential moving averages will turn before simple moving averages. Simple moving
averages, on the other hand, represent a true average of prices for the entire time period. As such, simple moving
averages may be better suited to identify support or resistance levels.
Lengths and Timeframes
The length of the moving average depends on the analytical objectives. Short moving averages (5-20 periods) are best
suited for short-term trends and trading. Chartists interested in medium-term trends would opt for longer moving averages
that might extend 20-60 periods. Long-term investors will prefer moving averages with 100 or more periods.
Some moving average lengths are more popular than others. The 200-day moving average is perhaps the most popular.
Because of its length, this is clearly a long-term moving average. Next, the 50-day moving average is quite popular for the
medium-term trend. Many chartists use the 50-day and 200-day moving averages together. Short-term, a 10-day moving
average was quite popular in the past because it was easy to calculate. One simply added the numbers and moved the
decimal point.

3. Double Crossovers
A system using a 5-day EMA and 35-day EMA would
be deemed short-term. A system using a 50-day SMA
and 200-day SMA would be deemed medium-term,
perhaps even long-term.
A bullish crossover occurs when the shorter moving average
crosses above the longer moving average. This is also known as
a golden cross. A bearish crossover occurs when the shorter
moving average crosses below the longer moving average. This
is known as a dead cross.
Triple Crossovers
There is also a triple crossover method that involves
three moving averages. Again, a signal is generated
when the shortest moving average crosses the two
longer moving averages. A simple triple crossover
system might involve 5-day, 10-day and 20-day moving
averages.
Note that MACD and the PPO are based on exponential moving averages and will not match up
with simple moving averages.

4. Pivot Points
Don’t know how to draw trendlines/support/resistance levels? Use Pivot Points!
Interpreting and Using Pivot Points
When calculating pivot points, the pivot point itself is the primary support/resistance. This means that the largest price
movement is expected to occur at this price. The other support and resistance levels are less influential, but may still
generate significant price movements.
Pivot points can be used in two ways. The first way is for determining overall market trend: if the pivot point price is
broken in an upward movement, then the market is bullish, and vice versa. Keep in mind, however, that pivot points
are short-term trend indicators, useful for only one day until they need to be recalculated. The second method is to use
pivot point price levels to enter and exit the markets. For example, a trader might put in a limit order to buy 100 shares
if the price breaks a resistance level. Alternatively, a trader might set a stop-loss for his active trade if a support level is
broken.

5. When to use MACD?
Parameters: 26,12,9 = Blue EMA, Blue EMA, Signal EMA
http://en.wikipedia.org/wiki/MACD

6. When to use TRIX?
Parameters: 15/5/45, 9 = Blue EMA, Signal EMA (Red)
The biggest difference between TRIX and MACD is that TRIX is smoother than MACD. The TRIX lines are less jagged
and tend to turn a bit later.

7. When to use RSI?
Parameters: (14/10/20)
Like many momentum oscillators, overbought and oversold readings for RSI work best
when prices move sideways within a range.

8. Stochastic
(Bound Oscillator; Trading Range)
A longer look-back period (20 days
versus 14) and longer moving
averages for smoothing (5 versus 3)
produce a less sensitive oscillator
with fewer signals. Yahoo was
trading between 14 and 18 from
July 2009 until April 2010. Such
trading ranges are well suited for
the Stochastic Oscillator. Dips
Certain indicators like CCI
and stochastics are designed
for prompt action, giving
almost immediate signals of
trend reversal. However, on
the down side, they are
vulnerable to being
whipsawed.
The default setting for the Stochastic Oscillator is 14 periods, which can be days, weeks, months or an intraday
timeframe. A 14-period %K would use the most recent close, the highest high over the last 14 periods and the
lowest low over the last 14 periods. %D is a 3-day simple moving average of %K. This line is plotted alongside %K
to act as a signal or trigger line.

9. Williams %R = Fast Stochastic
(Bound Oscillator; Trading Range)
A move below -50
confirms a downturn
after an overbought
reading. A move above
-50 confirms an upturn
after an oversold
reading.
The default setting for Williams %R is 14 periods, which can be days, weeks, months or an intraday timeframe.
A 14-period %R would use the most recent close, the highest high over the last 14 periods and the lowest low
over the last 14 periods
Developed by Larry Williams, Williams %R is a momentum indicator that is the inverse of the Fast
Stochastic Oscillator. Also referred to as %R, Williams %R reflects the level of the close relative to the highest high
for the look-back period. In contrast, the Stochastic Oscillator reflects the level of the close relative to the lowest low.
%R corrects for the inversion by multiplying the raw value by -100. As a result, the Fast Stochastic Oscillator and
Williams %R produce the exact same lines, only the scaling is different. Williams %R oscillates from 0 to -100.
Readings from 0 to -20 are considered overbought. Readings from -80 to -100 are considered oversold.
Unsurprisingly, signals derived from the Stochastic Oscillator are also applicable to Williams %R.

10. When to use TRIN (Arms Index)?
TRIN = (AD Issues Ratio)/(AD Volume Ratio)
Or to put it more specifically:
TRIN = ((Advancing issues/declining issues) / (advancing
volume/declining volume))
The NYSE Comp. TRIN analysis can be very helpful in
trading indexes, their derivatives, index emini futures,
index options, options on index derivatives and index
tracking mutual funds. Use the following references for
examples of TRIN interpretation:
TRIN Analysis
Trin Examples
Analysis based on the TRIN indicator have evolved over the years. Richard Arms original concept was to
use the TRIN as an indicator for detecting critical market levels. He assumed that a market was
overbought when the 10-day moving average of the TRIN declined below 0.8. Conversely, he considered
a market oversold when this moving average rose above 1.2.
The index is calculated by dividing the AD Ratio by the AD Volume Ratio. Typically, these breadth statistics
are derived from NYSE or Nasdaq data, but the Arms Index can be calculated using breadth statistics from
other indices such as the S&P 500 or Nasdaq 100.

11. When to use TRIN (Arms Index)?

12. Example 1:
In this case, the TRIN indicator has a value greater than 1. Table 1 indicates that during this particular uptrend,
declining stocks were traded more actively than advancing stocks. The average volume traded per declining stock
was 3K, compared to an average volume per advancing stock of 1.5K. This implies that even though the index was
advancing, selling pressure in the group of declining stocks exceeded the buying pressure in the group of
advancing stocks - a bearish sign.
Example 2:
In this example, the TRIN reading was below 1. During this particular uptrend, advancing stocks were traded
more actively than declining issues. The average volume traded per advancing stock was 2.5K, compared to an
average volume per declining stock of 1K. This means that during the uptrend, the buying pressure in the group
of advancing stocks surpassed the selling pressure found among declining issues - a bullish sign.
Example 3:
In this third case, the TRIN indicator stayed below 1. This is an example where the index was in a downtrend but
where advancing stocks were being traded more actively than declining stocks. The average volume traded per
advancing stock was 3K, compared to an average volume per declining stock of 1.5K. Even though the index was
losing ground, the buying pressure in the group of advancing stocks was greater than the selling pressure found
among declining issues - a bullish sign.
Example 4:
In this last example, the TRIN indicator was above a value of 1. This is a further instance where the index is in a
downtrend, but in this particular case, declining stocks were traded more actively than advancing stocks. The
average volume traded per declining stock was 2.5K, compared to an average volume per advancing stock of 1K.
Here, we have a situation where the index is pushing lower and the selling pressure in the group of the declining
stocks was stronger than the buying pressure in the group of advancers - a bearish sign.
Conclusions:
A comparison of examples 1 and 2: In both cases, the ratio of declining and advancing issues was identical, but
market sentiment in the latter case could be considered more bullish than in the former.
A comparison of examples 3 and 4: In spite of the fact that the ratio of declining and advancing issues remained
the same for both cases, example 4 has more bearish implications than case 3.

13. DMI vs ADX
Parameters: (14/10?/20?)
Wilder suggests that a strong trend is present when ADX is above 25 and no trend is present when below 20. There appears to be
a gray zone between 20 and 25. As noted above, chartists may need to adjust the settings to increase sensitivity and signals. ADX
also has a fair amount of lag because of all the smoothing techniques. Many technical analysts use 20 as the key level for ADX.

14. Parabolic SAR
What limitations of SAR should the swing trader be aware of? There are three major ones I think bear further discussion:
-- During a period of sideways consolidation, SAR will give frequent buy and sell signals. Traders who mechanically follow
these signals will at best breakeven and can possibly lose money by following SAR's guidance.
--SAR works best during a strong trend. Even then, however, SAR can give a signal to take profits, only to have the stock
reverse soon after. Generally SAR leaves one or two dots going in the countertrend direction and then reverts to its original
arc. I call these whipsaws the "parabolic whoops."
--SAR is a mechanical mathematical calculation. It is an effective first step in setting a stop loss, but should not be a final one.
The swing trader should also integrate Intermediate and Minor trendlines, moving averages, "round number" support and
resistance, and horizontal support/resistance areas.
Acceleration Factor: (0.02 or 2%)
To keep it from getting too large, a maximum value for the acceleration factor is normally set at 0.20, so that it never goes
beyond that. For stocks trading, it is preferable to set the acceleration factor to 0.01, in order to be less sensitive to local
decreases. For commodity or currency trading, it is preferable to use a value of 0.02.
That acceleration will normally begin after the fourth or fifth dot. Swing trader's should consider a trend to be more
"established" once the forth or fifth dot is reached and may want to use that dot as a signal.
Following such a strategy has a definite cost; traders will usually be forced to pay higher prices. The benefit, though, is that a
more reliable entry point will be gained, one less prone to being whipsawed. By contrast, a more risky time to enter a trade
based on a Parabolic SAR signal is when the dots have an increasing amount of space between them. As we saw in last week's
article, when the dots are expanding the stock has typically already hit a series of new highs. The "acceleration factor" used in
the SAR calculation is causing the dots to move parabolically.

15. ADL (Gapping Issue) vs OBV
Instead, the Accumulation
Distribution Line focuses
on the level of the close
relative to the high-low
range for a given period
(day, week, month). With
this formula, a security could
gap down and close
significantly lower, but the
Accumulation Distribution
Line would rise if the close
were above the midpoint of
the high-low range
Bullish and bearish divergences are where is getting interesting. A bullish divergence forms when price moves to new lows, but
the Accumulation Distribution Line does not confirm these lows and moves higher. A rising Accumulation Distribution Line
shows, well, accumulation. Think of this as basically stealth buying pressure. Based on the theory that volume precedes price,
chartists should be on alert for a bullish reversal on the price chart.
The chart above shows Nordstrom (JWN) with the Accumulation Distribution Line. Notice how it is easy to compare price action
when the indicator is placed "behind" the price plot. The indicator (pink) and the price trend moved in unison from February to
June. Signs of accumulation emerged as the indicator bottomed in early July and started moving higher. JWN moved to a new
low in late August. Even though the indicator showed signs of buying pressure, it was important to wait for a bullish catalyst or
confirmation on the price chart. This catalyst came as the stock gapped up and surged on big volume.
Sometimes there is a, gasp, disconnect between prices and the indicator. Sometimes the Accumulation Distribution Line
simply doesn't work. This is why it vitally important to use the Accumulation Distribution Line, and all indicators for that
matter, in conjunction with price/trend analysis or other indicators.

16. Using Volume Indicators To Improve Trading
Volume is the total number of shares/contracts traded within a specified timeframe. The higher the
volume, the greater the liquidity. Generally, the higher the liquidity the lower the volatility, with
volatility being the size of price moves. Higher the volatility, the less the liquidity in most
situations.
On Balance Volume or OBV: Displaying it in graph form so that the trader can determine if money
is flowing into or out of a stock or contract.
A rising OBV line and increasing prices confirms a strong trend. However, a falling OBV line and
rising prices is thought to indicate a weak or soon to fail trend.
Accumulation/Distribution Line: It attempts to measure money flow into and out of
stocks/contracts. A bearish signal is given when the A/D line is moving downward, yet price is moving
up. Bullish indication would be an upward movement of the A/D line combined with a declining price.
The primary issue with the A/D line is it doesn't reflect price gaps. A stock that gaps then closes
within the range will not be shown in the A/D line. Even a series of such gaps will not be indicated
with this volume indicator.
In the most basic form, traders like to see volume slowly increasing in the direction of a
trend. A volume spike can indicate the end of a trend and declining volume can reflect a
soon to die move.

17. Chaikin Money Flow (CMF)
(Gapping Issue)
Chartists can filter these signals
with buffers by setting the bullish
threshold a little above zero (+.05)
and the bearish threshold a little
below zero (-.05). These thresholds
will not entirely eliminate bad
signals, but can help reduce
whipsaws and filter out weaker
signals.
Calculation Quirk
The Money Flow Multiplier in Chaikin Money Flow focuses on the level of the close relative to the high-low range for a given period
(day, week, month). With this formula, a security could gap down and close significantly lower, but the Money Flow Multiplier
would rise if the close were above the midpoint of the high-low range. The chart below shows Clorox (CLX) with a big gap down
and a close near the top of the day's high-low range. Even though the stock closed sharply lower on high volume, Chaikin Money
Flow rose because the Money Flow Multiplier was positive and volume was well above average. Ignoring the change from close-to-
close means that Chaikin Money Flow can sometimes disconnect with price.

18. Money Flow Index (MFI)
MFI is also known as volume-weighted RSI.
Interpretation
As a volume-weighted version of RSI, the Money Flow Index (MFI) can be interpreted similar to RSI. The big
difference is, of course, volume. Because volume is added to the mix, the Money Flow Index will act a little
differently than RSI. Theories suggest that volume leads prices. RSI is a momentum oscillator that already leads
prices. Incorporating volume can increase this lead time.
Quong and Soudack identified three basic signals using the Money Flow Index. First, chartists can look for
overbought or oversold levels to warn of unsustainable price extremes. Second, bullish and bearish divergence
can be used to anticipate trend reversals. Third, failure swings at 80 or 20 can also be used to identify potential
price reversals. For this article, the divergences and failure swings are be combined to create one signal group
and increase robustness.

19. Stochastics
(Trading Range)
A longer look-back period (20 days
versus 14) and longer moving
averages for smoothing (5 versus 3)
produce a less sensitive oscillator
with fewer signals. Yahoo was
trading between 14 and 18 from
July 2009 until April 2010. Such
trading ranges are well suited for
the Stochastic Oscillator. Dips
Certain indicators like CCI
and stochastics are designed
for prompt action, giving
almost immediate signals of
trend reversal. However, on
the down side, they are
vulnerable to being
whipsawed.
The default setting for the Stochastic Oscillator is 14 periods, which can be days, weeks, months or an intraday
timeframe. A 14-period %K would use the most recent close, the highest high over the last 14 periods and the
lowest low over the last 14 periods. %D is a 3-day simple moving average of %K. This line is plotted alongside %K
to act as a signal or trigger line.

20. Williams%R = Fast Stochastics
(Bound Oscillator; Range)
A move below -50
confirms a downturn
after an overbought
reading. A move above
-50 confirms an upturn
after an oversold
reading.
The default setting for Williams %R is 14 periods, which can be days, weeks, months or an intraday timeframe.
A 14-period %R would use the most recent close, the highest high over the last 14 periods and the lowest low
over the last 14 periods
Developed by Larry Williams, Williams %R is a momentum indicator that is the inverse of the Fast
Stochastic Oscillator. Also referred to as %R, Williams %R reflects the level of the close relative to the highest high
for the look-back period. In contrast, the Stochastic Oscillator reflects the level of the close relative to the lowest low.
%R corrects for the inversion by multiplying the raw value by -100. As a result, the Fast Stochastic Oscillator and
Williams %R produce the exact same lines, only the scaling is different. Williams %R oscillates from 0 to -100.
Readings from 0 to -20 are considered overbought. Readings from -80 to -100 are considered oversold.
Unsurprisingly, signals derived from the Stochastic Oscillator are also applicable to Williams %R.

21. Aroon vs ADX vs DMI
(Directional)
Both the Aroon up and the Aroon down fluctuate between zero
and 100, with values close to 100 indicating a strong trend,
and zero indicating a weak trend. The lower the Aroon up,
the weaker the uptrend and the stronger the downtrend, and
vice versa. The main assumption underlying this indicator is that
a stock's price will close at record highs in an uptrend, and
record lows in a downtrend.
Interpreting the Aroon Indicator
When the Aroon Down indicator (in red above) is above the 70 line and the Aroon Up indicator (in greed above) is
below 30, then the market is trending downwards.
In contrast, when the Aroon Up indicator is above the 70 line and the Aroon Down indicator is below 30, then the
market is trending strongly upwards.
When the Aroon Up and Aroon Down indicator move towards the centerline (50), then the market is entering into a
consolidation period.
By varying the period length, the Aroon indicator can give long term indications of trend or short-term indications of
trend. By default, the Aroon indicator is 25-periods (shown in the chart above), but a shorter time frame could be 10-
periods.
Another version of the Aroon indicator that combines both the Aroon Up and Aroon Down is presented on the next
page.

22. Bollinger Band (Volatility)
As Bollinger puts it, moves that touch or exceed the
bands are not signals, but rather "tags". On the face
of it, a move to the upper band shows strength, while
a sharp move to the lower band shows weakness.
Momentum oscillators work much the same way.
Overbought is not necessarily bullish. It takes
strength to reach overbought levels and overbought
conditions can extend in a strong uptrend.
Settings can be adjusted to suit the characteristics of particular securities or trading styles. Bollinger recommends
making small incremental adjustments to the standard deviation multiplier. Changing the number of periods for the
moving average also affects the number of periods used to calculate the standard deviation. Therefore, only small
adjustments are required for the standard deviation multiplier. An increase in the moving average period would
automatically increase the number of periods used to calculate the standard deviation and would also warrant an
increase in the standard deviation multiplier. With a 20-day SMA and 20-day Standard Deviation, the standard
deviation multiplier is set at 2. Bollinger suggests increasing the standard deviation multiplier to 2.1 for a 50-
period SMA and decreasing the standard deviation multiplier to 1.9 for a 10-period SMA.
Bollinger Bands consist of a middle band with two outer bands. The middle band is a simple moving average that is
usually set at 20 periods. A simple moving average is used because a simple moving average is also used in the
standard deviation formula. The look-back period for the standard deviation is the same as for the simple moving
average. The outer bands are usually set 2 standard deviations above and below the middle band.

23. ATR (Volatility)
Conclusions
ATR is not a directional indicator, such as MACD or RSI. Instead, ATR is a unique volatility
indicator that reflects the degree of interest or disinterest in a move. Strong moves, in either
direction, are often accompanied by large ranges, or large True Ranges. This is especially true at
the beginning of a move. Uninspiring moves can be accompanied by relatively narrow ranges. As
such, ATR can be used to validate the enthusiasm behind a move or breakout. A bullish reversal
with an increase in ATR would show strong buying pressure and reinforce the reversal. A bearish
support break with an increase in ATR would show strong selling pressure and reinforce the
support break.
It is important to remember that ATR does not provide an indication of price direction, just volatility.

24. Fibonacci Series
• Fibonacci Retracement – 2 points
– Uptrend
• Point A: Resistance
• Point B: Recent Support
– Downtrend
• Point A: Support
• Point B: Recent Resistance
• Fibonacci Projection – 3 points
– Uptrend
• Point A: Support
• Point B: Resistance
• Point C: Recent Support (Can be higher than Support)
– Downtrend
• Point A: Resistance
• Point B: Support
• Point C: Recent Resistance (Can be lower than Resistance