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Indicator Guide

Indicator Basics

  • Using Indicators
    When using indicators, it pays to understand their strengths and weaknesses.
  • Favorite Indicators
    My favorite indicators.
  • Indicator Signals
    Explains basic indicator and trend concepts: respect, whipsaws, divergence, and failure swings.
  • Indicator Time Frames
    A key principle when using indicators: set the time frame to reflect the cycle being traded...
  • Fibonacci Numbers
    Fibonacci numbers are named after Leonardo Fibonacci, a twelfth century Italian mathematician who discovered the Golden ratio.
  • Linear Regression
    Linear regression fits a straight line to the selected data using a method called the Sum Of Least Squares.

Relative Strength & Overlays

  • Compare Prices
    Compare stock and/or index prices. Overlays can be plotted unadjusted, or to intercept on a selected date.
  • Price Comparison
    Price Comparison plots the performance of a stock against an index or a related stock.
  • Price Differential
    Similar to Price Comaprison, you can compare bond yields or interest rates that share the same price axis.
  • Price Ratio
    A powerful tool for stock selection, Price Ratio is also referred to as Relative Strength and compares the performance of a stock relative to an index or a related stock.
  • Relative Strength (Compare)
    Relative Strength calculates the strength of one stock/index compared to a second stock/index, either with/without a specified intercept date.

Moving Average Types

  • Moving Average
    The Moving Average smooths price data to create a powerful measure of trend direction. Simple, weighted and exponential moving averages are most popular.
  • Simple Moving Average
    Simple moving averages are easy to construct, but prone to distortion: they tend to "bark twice".
  • Exponential Moving Average
    Exponential moving averages are more sophisticated than simple moving averages and do not suffer from the same distortions.
  • Weighted Moving Average
    Weighted moving averages eliminate the distortion common to simple moving averages, but are more difficult to construct than exponential moving averages.
  • Wilder Moving Average
    Wilder moving averages are used mainly in indicators developed by J. Welles Wilder. Essentially the same as an exponential moving average, they use different weightings, for which users need to make allowance.
  • Hull Moving Average
    Alan Hull developed Hull Moving Average in 2005 in his quest to create a moving average that is "responsive to current price activity while maintaining curve smoothness". Hull claims that his moving average "almost eliminates lag altogether and manages to improve smoothing at the same time".
  • Displaced Moving Average
    Displaced Moving Averages are useful for trend-following purposes, reducing the number of whipsaws compared to an equivalent Exponential or Simple Moving Average.
  • Moving Average Filters
    Filters are employed to reduce the number of whipsaws when using moving average systems.
  • Moving Average High/Low/Open
    Calculates moving averages using daily, weekly or monthly Highs/Lows/Opens.
  • How To Select A Long-Term MA
    How to select a long-term moving average to track the primary trend.

Moving Average Systems

  • Two Moving Averages
    Fast and slow moving averages provide a powerful measure of trend strength and direction.
  • Three Moving Averages
    A more sophisticated MA system that uses a third moving average to identify ranging markets.
  • Multiple Moving Averages
    Daryl Guppy introduced multiple moving averages to measure trends and identify likely reversals. The indicator compares multiple short-term and long-term exponential moving averages.
  • Rainbow 3D Moving Averages
    Ivan Ballin's colorful variation of Daryl Guppy's Multiple Moving Averages.
  • Price Envelope
    Sometimes referred to as Percentage Bands, Price Envelopes are plotted at a set percentage above and below a moving average.
  • Keltner Channels
    Linda Bradford Raschke popularized Keltner bands, plotted at an ATR multiple around an exponential MA, to filter trend entries.
  • Ichimoku Cloud
    Ichimoku Cloud is a complete trend trading system, combining leading and lagging averages with traditional candlestick charts.

Moving Average Oscillators

  • Commodity Channel Index
    Donald Lambert's Commodity Channel Index (CCI) highlights overbought and oversold markets and likely turning points.
  • Detrended Price Oscillator
    The Detrended Price Oscillator isolates the short cycle, providing powerful trend signals on divergences.
  • MA Oscillator
    The Moving Average Oscillator simply compares closing price to the moving average.
  • MACD Indicator
    The problem with oscillators is that they often whipsaw. Trading MACD large swings and divergences provides more reliable signals.
  • MACD Histogram
    The MACD Histogram (Moving Average Convergence Divergence Histogram) provides far earlier and more responsive signals than the original MACD, but is also more volatile.
  • MACD Percentage
    MACD Percentage Price Oscillator is a variation of theMACD indicator. The major difference is the percentage scale which enables comparison between stocks.

Trend Indicators

  • Aroon Oscillator
    The Aroon Oscillator was developed by Tushar Chande to identify the start of a new trend and measure trend strength.
  • Coppock Indicator
    Edwin Coppock designed this oscillator with one sole purpose: to identify the commencement of bull markets.
  • Directional Movement
    Welles Wilder's Directional Movement is one of few indicators that not only provides trend signals but indicates whether a trend is suitable to trade.
  • Donchian Channels
    Richard Donchian's Channels are used in a number of trading systems to identify entry and exit points in trends.
  • Ichimoku Cloud
    Ichimoku Cloud is a complete trend trading system, combining leading and lagging averages with traditional candlestick charts.
  • KST Indicator
    Martin Pring's KST Indicator identifies major trend changes when KST crosses its signal line.
  • Linear Regression Indicator
    The Linear Regression Indicator is used for trend identification and trend following in a similar fashion to moving averages, but reacts faster than an MA to trend changes.
  • Moving Average
    The Moving Average smooths price data to create a powerful measure of trend direction. Simple, weighted and exponential moving averages are most popular.
  • Multiple Moving Averages
    Daryl Guppy introduced multiple moving averages to measure trends and identify likely reversals. The indicator compares multiple short-term and long-term exponential moving averages.
  • Parabolic SAR
    Developed by J. Welles Wilder, the Parabolic SAR indicator provides excellent short/medium-term entry and exit points in trending markets.
  • Rainbow 3D Moving Averages
    Ivan Ballin's colorful variation of Daryl Guppy's Multiple Moving Averages.
  • Bollinger %b
    Bollinger %b is used to signal subtle entry and exit opportunities that may be overlooked in a trend.

Momentum Oscillators

  • ADX
    ADX is part of the Directional Movement System developed by J. Welles Wilder. It is used to warn of trend changes and to identify whether a stock is trending or ranging.
  • Elder Ray Index
    Developed by Dr Alexander Elder, the Elder-Ray indicator measures buying and selling pressure in the market and is often used as part of the Triple Screen trading system.
  • Ichimoku Cloud
    Ichimoku Cloud is a complete trend trading system, combining leading and lagging averages with traditional candlestick charts.
  • Mass Index
    Donald Dorsey's Mass Index predicts trend reversals by comparing trading range over a 9 day period.
  • Momentum
    Momentum measures trend strength and identifies likely reversal points: on divergences or when Momentum crosses the overbought/oversold line.
  • Negative Volume
    Norman Fosback uses Negative Volume Index (NVI) with Positive Volume Index (PVI) to identify bull markets.
  • Positive Volume
    Introduced by Norman Fosback, Positive Volume Index identifies bull and bear markets by measuring activity on days when volume is higher.
  • Rate Of Change (Price)
    A refinement of Momentum, Rate of Change is designed to fluctuate as a percentage around the zero line.
  • Relative Strength Index (RSI)
    Developed by Welles Wilder, RSI (Relative Strength Index) is a popular momentum oscillator that compares upward and downward movements in closing price.
  • Slow Stochastic
    The Slow Stochastic Oscillator provides more reliable signals than the original indicator, applying further smoothing to reduce volatility and improve accuracy.
  • Smoothed Rate of Change (SROC)
    Smoothed Rate of Change (SROC), introduced by Fred G Schutzman in 1991, gives slower but more accurate signals than other momentum oscillators.
  • Stochastic Oscillator
    The Stochastic Oscillator tracks market momentum and provides excellent entry and exit signals from crossover of %K and %D lines or overbought/oversold levels.
  • TRIX Indicator
    Designed for trading trends, TRIX uses a triple-smoothed moving average to eliminate cycles shorter than the indicator period.
  • Twiggs Momentum Oscillator
    Twiggs Momentum Oscillator is a smoothed version of the Rate Of Change oscillator. Its primary purpose is to identify fast trending stocks.
  • Vertical Horizontal Filter (VHF)
    Adam White's Vertical Horizontal Filter (VHF) identifies trending and ranging markets.
  • Williams %R
    Williams %R is similar to Stochastic %K. Entry signals are taken on divergences, failure swings or crossover of the overbought/oversold level.
  • Williams Accumulate Distribute
    Larry Williams highlights accumulation and distribution by comparing daily trading ranges. Signals are taken on divergences.
  • Twiggs Smoothed Momentum
    Twiggs Smoothed Momentum is a smoothed version of the proprietary Twiggs Momentum oscillator. Its purpose is to provide a slower, less erratic signal for following long-term trends.
  • Chande Momentum Oscillator
    Chande Momentum Oscillator uses Overbought and Oversold levels, as well as Divergences, to identify reversals.
  • Ultimate Oscillator
    Larry Williams' Ultimate Oscillator uses three time frames in order to minimize false signals.
  • Stochastic RSI
    Stochastic RSI was designed by Tushar Chande and Stanley Kroll to generate more Overbought and Oversold signals than Welles Wilder's original Relative Strength oscillator.
  • Bollinger Bands
    Bollinger Band filters are calculated using exponential moving averages. Values are compared to Bollinger Bands at 1.0 standard deviation above and below the selected moving average.

Money Flow

  • Accumulation Distribution
    Accumulation Distribution tracks the relationship between price and volume and acts as a leading indicator of price movements. The strongest signals are divergences.
  • Chaikin Money Flow
    Developed by Marc Chaikin, the Chaikin Money Flow indicator often warns of breakouts and provides useful trend confirmation.
  • Chaikin Oscillator
    Marc Chaikin's oscillator monitors the flow of money in and out of the market.
  • Ease of Movement
    Richard W Arms' powerful Ease of Movement indicator highlights the relationship between volume and price changes; useful for assessing the strength of a trend.
  • Equivolume Charts
    The greatest advance in the last decade, equivolume exposes price and volume interaction.
  • Force Index
    Developed by Dr Alexander Elder, the Force index combines price movements and volume to measure the strength of bulls and bears in the market.
  • Money Flow Index
    Money Flow Index measures trend strength and warns of likely reversal points.
  • On Balance Volume
    Developed by Joseph Granville, OBV provides a powerful measure of accumulation and distribution by comparing volume to price movements.
  • Price Volume Trend
    The Price Volume Trend indicator measures the strength of trends and warns of reversals.
  • Twiggs Money Flow
    Colin Twiggs' Money Flow is a derivation of the Chaikin Money Flow indicator. Position above/below the zero line gives advance indication of breakouts, while divergences warn of reversals.
  • Williams Accumulation Distribution
    Williams Accumulation Distribution is traded on divergences. When price makes a new high and the indicator fails to exceed its previous high, distribution is taking place.

Volume

  • Volume
    Volume highlights unusual trading activity and provide powerful confirmation of price signals.
  • Rate of Change (Volume)
    The Rate of Change formula can also be applied to volume, where it highlights changes in volume activity.
  • Volume Oscillator
    Volume Oscillator is an easy to use indicator that highlights changes in volume activity.

Trailing Stops

  • ATR Bands
    Average True Range (ATR) Bands are used to signal exits in a similar fashion to ATR Trailing stops, but without the stop-and-reverse (SAR) of trailing stops.
  • ATR Trailing Stops
    ATR Trailing Stops are primarily used to protect capital and lock in profits on individual trades but they can also be used, in conjunction with a trend filter, to signal entries.
  • Chandelier Exits
    Chuck LeBeau's Chandelier Exits are primarily used as a stop loss mechanism to time exits from a trending market.
  • Ichimoku Cloud
    Ichimoku Cloud is a complete trend trading system, combining leading and lagging averages with traditional candlestick charts.
  • Parabolic SAR
    Developed by J. Welles Wilder, the Parabolic SAR indicator provides excellent short/medium-term entry and exit points in trending markets.
  • Percentage Trailing Stops
    Percentage Trailing Stops are a simple but effective method for locking in profits
  • Safezone Indicator
    Alexander Elder's Safezone Stops use Directional Movement to signal exits from a trend.
  • Volatility Stops
    Welles Wilder's original Volatility Stops uses Average True Range in a trend-following system.

Volatility Indicators

  • Average True Range
    Average True Range are used to measure commitment. Expanding ranges signal increased eagerness and contracting ranges, a loss of enthusiasm.
  • Bollinger Bands ?
    Bollinger Bands? are powerful signals. Here are two great strategies, for Bollinger Band Squeezes and Bollinger Band Trends.
  • Chaikin Volatility
    Developed by Marc Chaikin. Look for sharp increases in volatility prior to market tops and bottoms, followed by low volatility as the market loses interest.
  • True Range
    Welles Wilder's True Range adjusts the normal High - Low daily range when there is an opening gap.
  • Volatility
    Volatility is a statistical measure of risk called the coefficient of variation.
  • Volatility Ratio
    Jack Schwager, in his book Schwager on Futures, uses the Volatility Ratio to identify wide-ranging days.
  • Twiggs Volatility
    Twiggs Volatility is a proprietary volatility indicator used to flag elevated market risk.
  • Choppiness Index
    The Choppiness Index is a volatility indicator developed by Australian commodity trader Bill Dreiss to indicate whether a market is trending or ranging.
  • Bollinger Band Width
    Bollinger's Bandwidth Indicator is used to warn of changes in volatility. A squeeze, where the bands converge into a narrow neck, often precedes a sharp price rise or fall.





 
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