Archive for Indicators
Chapter 8 – ROC Rate of Change Indicator
Posted by: | CommentsThis is an excerpt from the soon to be released Liberated Stock Trader book and the accompanying “Academy Pro Training Course”
The rate of change is very similar to the Momentum indicator mentioned in the previous section, with one important difference, instead of a subtracting the latest price from the price X periods before it divides it. This is an important difference that improves the indicator.
Rate of Change = 100 (C / CX)
The results of ROC are similar but slightly better than that of Momentum as it handles large price swings better. As in the previous section, follow the numbered steps in the following Chart to understand how ROC can tell the story of future price movement.
Freestockcharts.com chart courtesy of Worden Brothers, Inc.
Now this is a busy chart.
- Using a trend line we can see that ROC breaks its downtrend at the end of November 2008. This is a useful way of using Oscillators, plotting trend lines on them. As oscillators are leading indicators using a trend line will show us when a trend change happens before it is reflected in price.
- The price then follows by moving up from 18.90 to 24.30 a 23% gain.
- Here we see a false signal, this shows us that no indicator is perfect. Always remember the price move is the most important, Oscillators can help us to improve our chances of guessing correctly. However this time it fails.
- ROC indicates a positive divergence, yet price hits resistance at 24.30 and then plummets south.
- ROC now corrects itself and 2 days before the actual severe price drop ROC shoots downwards, this is a warning sign top exit.
- Here again ROC shows a negative divergence.
- Price again hits resistance in June at 21.50. ROC’s divergence was correct and the stock drops.
- ROC Surges upwards in August and although price retraces in September ROC powers on showing a positive divergence.
- The first 2 weeks in October the price surges again.
- ROC shows another negative divergence with the price trend.
- No new price high
- Price falls, again predicted by ROC.
You are now familiar with positive and negative divergences, but also realize that price is the most important indicator and that Oscillators can be wrong. Wait for the indicator to scream, if it says nothing move on.
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Assessing Market Direction is critical before buying a Stock !
Posted by: | CommentsDow Theory has basically 5 tenets.
1. The market discounts everything.
2. The market has 3 trends (Primary, from months to years) Secondary (weeks to months) Minor (days to weeks) Charles Dow holds that minor trends can be random but the other 2 are parts of a cyclical trend.
3. The Primary trend has 3 phases, Accumulation, (the far sighted investors who have see a potential recovery) Pulic Participation (company earnings are proving good and the general public starts to participate), Distribution (far sighted investor start to sell as they see Stock Price growth is unsustainable in comparison to company earnings or economic climate).
4. The averages must confirm. Using the Dow Jones Industrial Average and the Dow Jones Transports, both must be in sych to have a solid trend. When both head down this is the start of a bear market for example.
5. Market Action. Volume is important and a market moving up on increasing volume is healthy. A market moving down on increasing volume is a warning sign.
Using the Ichimoku Cloud to forecast the market direction.
Posted by: | CommentsAre you wondering where the market is heading? At this point in time it is worth deciding where you stand. Are you Bullish, Bearish or undecided?
A really excellent tool for helping visualize a what stage the market is in, is the Ichimoku Cloud.
Details of the Ichimoku Cloud Theory can be found on the web. The Society of Technical Analysts have good information on reading and understanding the Ichimoku Charts here.
Using Fibonacci Retracement S&P 500
Posted by: | CommentsIt would seem that the S&P500 breaking through the 1000 barrier only lasted 7 days. During this period we have seen significant indecision and a move of some key important indicators to the downside.
In the chart below you can see.
- RSI in a negative divergence since the start of August.
- Rate of Change (ROC) negative divergence since the start of August.
- MACD in negative territory (below the Zero Line) and looking to stay there
- Price moved strongly below the 10 & 20 Day Moving Averages
- Also the move below 1000 on heavey volume (remember the lesson on volume)
Head and Shoulders Pattern – Learn Stock Trading
Posted by: | CommentsHere we discuss the famous Head and Shoulders price pattern. Understood to be one of the most predictive & reliable of patterns the Head and Shoulders pattern has some unique characteristics. However you do need to know what you are looking for.
A Head & Shoulders Pattern has the following traits.
- two shoulders.
- a high point, the head, in between the shoulders.
- the volume should confirm the pattern.
