Understanding Oscillators & Indicators March 4, Clarify, Simplify & Multiply

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Rhoda Campbell
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1 Understanding Oscillators & Indicators March 4, 2015 Clarify, Simplify & Multiply

2 Disclaimer U.S. Government Required Disclaimer Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don t trade with money you can t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this training. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. All Materials presented are for training purposes only. Traders should paper trade any new method prior to risk of personal capital.

3 Questions Learn to ask the right questions about indicators/oscillator The Wrong Question: Which is best? The Right Question: Which can I learn to use the best? The Right Question: Which adds more value than it takes away in distraction? The difference is subtle but powerful, one makes it easy to blame, the other requires taking responsibility.

4 Secondary Active Trend Trading Indicators The Active Trend Trading System has Two levels of indicators to aid in timing both entries and exits Primary Indicators include Price Action This is King! Moving Averages 8 ema, 20 sma, 50 sma, 100 sma & 200 sma (On weekly chart the only the 8 ema (approx the 50 day), 20 and 40 sma Candlestick Reversal Patterns Trend Lines & Price Level Support and Resistance Zones Pattern Breakouts Secondary Indicators include: TSI (8,8,3 setting on TOS Charts) Moving Average Envelope(20 sma, 10% on Daily Chart, 5% Intraday & 25% on Weekly) Momentum (12 setting on TOS Charts)

5 Indicators & Oscillators Refresher Indicators & Oscillators are SEXY! When we discover them we think We ve found Traders Nirvana! Indicators & Oscillators are intended to: Alert, Confirm & Predict, but not be the primary trigger Two types Leading: Momentum, RSI, CCI, %R, Stochastics, TSI Lagging: MACD, Moving Averages Indicators & Oscillators are a derivative (and sometimes a derivative of a derivative) Price Action provides Buy & Sell Signals indicators provide confirmation Most useful when their patterns are understood and used with other clues Most measure the velocity of change of data being measured More Study: Introduction to Technical Indicators & Oscillators

6 Momentum Indicator : Challenges Always a trade off between Sensitivity and consistency Shorter time periods= higher sensitivity more whipsaw! Longer time periods= higher consistency, less whipsaw fewer signals! Interpreting the signals in context of what price action is showing Indicators drawing attention away from the price action and price action signals Waiting on Confirmation

7 What I want from an Indicator/Oscillator Tell me something about the internals of the entity What does that mean MACD and other indicators measure only a derivative of a derivative Provide Patterns Show Divergence Here s a closer look at the: - Momentum Indicator - True Strength Index

8 Momentum Indicator: Components Description: TOS Momentum Indicator measures Raw Price The Momentum study measures the velocity of price changes for a fixed time interval. Momentum is measured by subtracting the price at the beginning of the interval from the latest price. It is considered a Buy signal, when the Momentum values start to rise, and a Sell signal when the values start to decrease. Input Length: The number of bars to go back to find past price Price : The price to be used in calculations

9 Momentum Indicator: Comparisons Price is King: Always Start Here! Price Trigger Choose 1 and learn how to use it! Only You Can Eliminate Chart Clutter!

10 Momentum Indicator: Signals Price Action Triggers: Keltner Bounce & Trend Line Break

11 Signals Divergence & No Confirming Signal

12 What about the Arrows? Up Green Arrows correspond to a move above the zero line by the Momentum Indicator Down Red Arrows correspond to a move below the zero line by the Momentum Indicator Both are of less importance that the divergent signals from the Indicator

small gear on the right edge next to the study Set

13 Arrow Formula: TOS Chart Studies From Edit Studies: Load 2 Momentum Crossover Studies Then click on the small gear on the right edge next to the study Set on up to be an up arrow and they other to be a down arrow

14 True Strength Index (TSI) Thanks to Andy & Larry from the Lone Star State for sharing this! A technical momentum indicator that helps traders determine overbought and oversold conditions of a security by incorporating the short-term purchasing momentum of the market with the lagging benefits of moving averages. Generally a 25-day exponential moving average (EMA) is applied to the difference between two share prices, and then a 13-day EMA is applied to the result, making the indicator more sensitive to prevailing market conditions. After the data is smoothed, some calculations are done to make the indicator fall in a range from +100 to -100, or from +1 to -1. Modification I ve made: 8 day EMA and then 3 day EMA Preliminary Observations show it works well alone and in combination with Stochastics and Momentum

15 True Strength Index (TSI) A technical momentum indicator that helps traders determine overbought and oversold conditions of a security by incorporating the short-term purchasing momentum of the market with the lagging benefits of moving averages. Generally a 25-day exponential moving average (EMA) is applied to the difference between two share prices, and then a 13-day EMA is applied to the result, making the indicator more sensitive to prevailing market conditions. After the data is smoothed, some calculations are done to make the indicator fall in a range from +100 to -100, or from +1 to -1. Modification I ve made: 8 day EMA and then 3 day EMA

16 True Strength Index (TSI): Multiple Time Frames Daily/Weekly ALK

17 True Strength Index (TSI): Intraday Example TSLA Intraday 1 Hour Chart

18 Momentum Indicators Conclusions Indicators & Oscillators are intended to: Alert, Confirm & Predict Two types Leading: Momentum, RSI, CCI, %R, Stochastics Lagging: MACD, Moving Averages Indicators & Oscillators are a derivative (and sometimes a derivative of a derivative) Most measure the velocity of change of data being measured Price Action provides Buy & Sell Signals indicators provide confirmation Most useful when their patterns are understood and used with other clues

19 Next Time Using Intraday Chart without Watching Intraday Charts Stock Review & Questions

Using Oscillators & Indicators Properly May 7, Clarify, Simplify & Multiply

Using Oscillators & Indicators Properly May 7, 2016 Clarify, Simplify & Multiply Disclaimer U.S. Government Required Disclaimer Commodity Futures Trading Commission Futures and Options trading has large