Percentage of S&P 500 Stocks Over 20-Day Moving Average

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Technical Indicators

Below are some of the most commonly used technical indicators and a good point for beginning to learn about such indicators. I have made some comments and links for study and implementation.

Things to expand on in future:
RSI - 14 most often used, over 70 is generally over bought
ADX - learning links
MACD- 12, 26, 9 most often used
Moving Averarges
VIX – When VIX spikes quickly to over 38, in a mater of weeks, it I usually a bull correction. When it spikes slowly over months, such as in 1988, is usually the beginning of a bear market.
Bollinger Bands (10,1.5)
Bollinger Bands measure the volatility in a stock, index, or other secureity. Volatility shrinks in a stock because the selling pressure and buying pressure become more equal. That situation doesn’t last forever and when it ends by the sellers running out of stock to sell the stock then breaks through resistance. Bollinger Bands can help you tell when this is going to happen because when volatility increases in a stock the two bands get farther apart and when volatility shrinks they come close together.
Stochastics Stochastic notes – David Skarica was using %k=14 & %D=3, on 5/22/2010 at bigcharts.com
At freestockcharts.com, I like Period-12, %K=3, %D=5
Yahoo - K=5, D=3

Double Tops & Bottoms

A good video on double top chart formations
Part 1.http://www.youtube.com/user/InformedTrades#p/c/33D0C18CDEBF64B7/6/v9_1q1Jeiuw
Part 2. http://www.youtube.com/user/InformedTrades#p/c/33D0C18CDEBF64B7/7/xbPQAA0yyf8

Look for declining volume on second top or bottom.

Head & Shoulders Patterns

Two Intro Videos
How to Trade the Head and Shoulders Pattern Part 1
How to Trade the Head and Shoulders Pattern Part 2
Look for declining volume on the head and right shoulder.
Pay attention to neckline - is it declining or advancing?
Should be increasing volume on break of neckline as more confirmation.

RS & RSI

Relative Strength vs. Relative Strength Index -Know the Difference

 

Relative Strength

Relative Strength (RS) is calculated dividing the price performance of a stock or ETF by the price performance of an appropriate index for the same time period. The index may be a sector or a broader market average. If the relative strength line is rising then the stock is outperforming the index.

 

In theory, if market or sector rallies, a security stronger than the contrasting index should tend to rally more than the index or market. When the index drops the stock or ETF, with the stronger RS, should drop less or not at all. It could possibly continue go up as well.

 

Inverse: A security with a weaker RS will not rise as slow during a rally, and tends to fall quicker in a decline.

 

Application:

• When it is time to go long, be long on securities that are stronger than the index.
• When it is time to go short, be short on securities that are weaker than the index.
• Consider and exit strategies for securities showing divergence.
  • If long, a selling plan or a rising stock with a weakening RS.
  • IF short, a covering plan for a fallling security with a strengthening RS

 

Relative Strength Index

Relative Strength Index (RSI) is calculated as such:

RSI = 100 –  [100/ (1 + (Average of x days' up closes / Average of x days' down closes))]

 

RSI is a technical momentum indicator. It compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of a given security or index.  Like all other indicators it is subject to false signals and not meant to be used alone

 

• The RSI scale ranges from 0 to 100.
• RSI approaching the 70 level means that it may be getting overvalued and is a good candidate for a pullback.
• The RSI approaching 30, it is an indication that the security could be oversold or undervalued.
• Large surges and drops in the price of a security or index asset will impact the RSI resulting in false signals.
• The RSI can say above 70 or below 30 for quite some time.
• The RSI can whipsaw - say for example drop below 30 begin to rise to say 40,or even 50, than drop back down to 30
• The RSI does not necessary go below 30 at the end of a declining move.
• The RSI may not necessarily be above 70 at the end of an advancing move.
• New highs with correspond lower RSI (divergence) should be taken as a warning signal.

 

 

 

Stochastics

Defaults:
At freestockcharts.com, Period-12, %K=3, %D=5
Yahoo - K=5, D=3 for Fast Stochastic, & K=15, D=5 for Slow Stochastic

A Stochastic Oscillator is a technical momentum indicator. It compares a security's (or index) closing price to its recent price range over a given time period.

%K = 100[(C - L14)/(H14 - L14)]

C = the most recent closing price
L14 = the low of the 14 previous trading sessions
H14 = the highest price traded during the same 14-day period.
(Generally uses the past 14 trading periods but can be adjusted)


%D = 3 period moving average of %K

The indicator is based on the theory that during an upward-trending market prices tend to close near the high of the trading range, and during market trending downward, prices tend to close near the low of their trading range.

At as site such as free stockmarketcharts.com, you can change the period value, the %K value, and the %d Value. At yahoo however you can only change the %K value and the %D value. Looking at the equation the yahoo changes seem to make more sense.

This link provide mores:
http://www.investopedia.com/university/indicator_oscillator/ind_osc8.asp

Stochastic:
Fast %K = 100(Close price - Lowest low of period) / (Highest high of period - Lowest low of Period)]
Fast %D = 3-period moving average of %K
(same as above equation)


Slow Stochastic:
Slow %K = three period moving average of the %K Fast
Slow %D = N period moving average of the %K Slow

Full Stochastic:
Slow %K = N period moving average of the %K Fast
Slow %D = N period moving average of the %K Full

Fast, Slow or Full

There are three versions of the Stochastic Oscillator available on SharpCharts. The Fast Stochastic Oscillator is based on George Lane's orignal formulas for %K and %D. %K in the fast version appears rather choppy and %D represents a smoothed version of %K. In fact, Lane used %D to generated buy or sell signals based on bullish and bearish divergences. Lane asserts that a %D divergence is the "only signal which will cause you to buy or sell". Because %D in the Fast Stochastic Oscillator is used for signals, the Slow Stochastic Oscillator was introduced to reflect this emphasis. The Slow Stochastic Oscillator smooths %K with a 3-day SMA, which is exactly what %D is in the Fast Stochastic Oscillator. Notice that %K in the Slow Stochastic Oscillator equals %D in the Fast Stochastic Oscillator

http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:stochastic_oscillato

Pay Attention to Stochastic Divergences see this site:
http://www.tradingonlinemarkets.com/Articles/Technical_Analysis/Slow_Stochastic_Oscillator.htm

use Sotchastics with other indicators - trendlines, candlesticks etc.....