Technical Indicator

The Parabolic SAR – Definition, Use and Calculation

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In this article, we will show you how the Parabolic SAR indicator can help you predict the market trend and its oscillations. The Parabolic SAR is another of the stock market technical indicators developed by the legendary Welles Wilder, who published it in his well-known book “New concepts in technical trading systems“, along with the RSI, the ATR, and the … Read more

Moving Average Convergence Divergence Indicator – MACD Definition

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The Moving Average Convergence Divergence (MACD) is a popular technical indicator used to identify changes in momentum, trend direction, and potential buy/sell signals for an asset. It was developed by Gerald Appel in the late 1970s and has since become a widely used tool by traders and investors.

The MACD is calculated by subtracting a longer-term exponential moving average (EMA) from a shorter-term EMA. The result is a signal line that oscillates around a zero line, which represents the point of equilibrium between buying and selling pressure. The most commonly used EMA periods for the MACD calculation are 12 and 26 days.

In addition to the MACD line, a signal line is typically plotted as a 9-day EMA of the MACD line. This signal line is used to identify potential buy/sell signals based on crossovers with the MACD line. When the MACD line crosses above the signal line, it is considered a bullish signal, suggesting that buying pressure is increasing. Conversely, when the MACD line crosses below the signal line, it is considered a bearish signal, suggesting that selling pressure is increasing.

The MACD can also be used to identify divergences between the indicator and the price chart, which can signal potential trend reversals. For example, if the price is making higher highs but the MACD is making lower highs, it may suggest that the bullish trend is losing momentum and a bearish reversal may be imminent.

Overall, the MACD is a versatile indicator that can be used in a variety of ways to help identify potential buy/sell signals, trend direction, and changes in momentum for an asset. As with any technical indicator, it is important to use the MACD in conjunction with other forms of analysis and risk management strategies to make informed trading decisions.

Williams %R Indicator – Definition, Calculation and Uses

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Williams %R indicator is an oscillator of technical analysis, for which it works better in lateral trending markets that in those with a strong trend. Basically what it does is measure how close to the maximum or minimum of a certain period of time the prices have closed during the last trading session or during any other time frame chosen by the trader. Remember that like other indicators, it can be used to analyze different periods of time from few minutes to hours, days, weeks, etc.. It was developed by  Larry Williams.

To apply this indicator the trader must select the time period, which is usually 14 periods (but that depends of the trader´s needs). In this case 14 is one of the most common value of this parameter but it  be changed if the trader believes that he will have better results with other values. If the trader is analyzing the market development over a period of 1 or more days, the Williams% R indicates if the closing price of the last session is close or not of the maximum or the minimum of the last 14 sessions.

The idea is that when asset prices are analyzed in a market that is moving in a sideways trend (a trend with no clear direction), the fact that during the last session the closing price is near the maximum or minimum of the last 14 days may be an indication that  is approaching the moment when the market could change its direction and go up or down. In short, if the market is in a sideways trend and the closing price of the last session is near the maximum of the last 14 sessions, probably the price will fall and if the closing price is near the minimum, there is a high probability that the price is going to rise.

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Bar Charts in trading

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Bar charts- A useful market analysis tool

The Bar charts are one of the various types of prices charts used to analize the market movements. The bar charts, unlike the line charts, shows the movement of prices for a specific period of time (can be 1 minute, 5 minutes, 1 hour, 1 day, 1 week, etc), besides the opening price, closing price, maximum price and minimum price. The bar is represented by a vertical line and two perpendicular horizontal lines. The high point in the bar is the maximum price achieved in the period while the low point is the minimum price in the same period. The two horizontal lines are arranged one to the right and the other to the left. The left side line represents the opening price and the right side line is the closing price.The information represented in the bar charts is more complex than that presented in line graphs, but is also more complete.

There are two types of bar charts used in Forex and other markets, and differ slightly from the information presented. One is called LHC (initials Low, High, Close) chart and the other OLHC (initials of Open, Low, High, Close) chart, and they look very similar in the graph but in fact there are some differences between them. These charts show bars with information on price movements of a currency pair in a given period. For example, if we choose to see a OLHC chart of the EUR /USD of 15 minutes, each bar shows information about what has happened in separated periods of 15 minutes in the Forex Market.

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Technical Analysis in Trading

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What is Forex technical analysis?

Introduction

There are two main approaches used to analyze and decide when to buy or sell in the market. These methodologies are called technical analysis and fundamental analysis and each one is based on radically different principles. In this section, we are going to discuss mainly about technical analysis but at the same time, we are going to present an introduction to fundamental analysis to explain this approach to visitors.

Fundamental analysis

In the Forex market, the fundamental analysis examines in depth the political, social, or economic events and how and why these events have historically affected the prices of currencies. So its main purpose is to understand the current state and likely evolution of the price action according to the socioeconomic circumstances that are currently being developed or in the process to be developed.

In the case of stock market analysis, for example, the fundamental analysis examines the financial reports published by the company, audits, quarterly and annual balance sheets, market trends, product quality, dividends, sales, position against competitors, news, etc… Ultimately this determines whether the stock price is below, above, or matches the price at which such share is quoted at the time. If, for example, the result of the fundamental analysis shows that the share price should be higher than what is listed at that time, the recommendation is to buy it and wait for the market’s true value.

In the case of the Forex market, fundamental analysis studies the economic, political, social, and even weather events that can affect the exchange rates of the currencies mainly in the long term.

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The Stochastic Oscillator Indicator

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What is the stochastic oscillator? The Stochastic Oscillator is a popular technical indicator used in financial market analysis, particularly in trading. It is a momentum oscillator that compares the current price of an asset to its price range over a certain period of time, typically 14 days. The Stochastic Oscillator was developed by George Lane, a prominent technical analyst, in … Read more

Pivot Points in Trading

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Pivot points are a popular technical analysis indicator used in trading to identify potential support and resistance levels for an asset’s price. These levels are calculated based on the asset’s high, low, and closing prices from the previous trading session. They are used to determine levels at which the price is likely to bounce or continue the current trend. In this article, we are going to show the different types of pivot points that exist, their calculation, and some suggestions for their use.
Pivot Points in trading
Standard Pivot Points

Traders use pivot points to help determine potential entry and exit points for trades. For example, if the price of an asset is approaching a pivot point level that is also a resistance level, traders may consider selling the asset as the price is likely to encounter selling pressure at that level. Conversely, if the price is approaching a pivot point level that is also a support level, traders may consider buying the asset as the price is likely to find support at that level.

Pivot points are most commonly used in intraday trading, but they can also be used for longer-term trades as well. There are several different methods for calculating pivot points, including the standard method, the Woodie’s method, and the Camarilla method, among others.

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Trading models based on channels: Wolfe Waves

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Price channels are a clear example of resources that can be used to define both entry points and exit points. In addition they allow to analyze the current situation in the market in such a way that they allow the trader to make better decisions. Once the channel is formed, we can obtain a lot of information related to the price movement inside the same channel, however the problem occurs when the market does not move in a defined channel, a situation in which it can be difficult to detect breakout points and therefore the reaction of the market can take us by surprise.

For these cases the investor can use the so-called “advanced channel models“, among which we can highlight the Wolfe Waves, which can help us to identify potential entry and exit points of the market based on channels, even when in appearance there is no clearly defined channel.

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Stochastic RSI Indicator

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The Stochastic RSI was developed to increase the sensitivity and reliability of the regular RSI indicator especially when the trader wants to trade  during periods when the RSI is in overbought/oversold condition.
The creators of this indicator – Tushar Chande and Stanley Kroll – explain that very often the RSI oscillator remains at the levels 20 and 80 for extended periods of time without even reaching the overbought and oversold areas where many traders look for opportunities to enter the market.
Therefore, when the RSI is combined with the stochastic oscillator, a new indicator, the Stochastic RSI, offers better and clearer signals for opening and closing positions.

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