Technical Indicators that Really Work

Technical Indicators that Really Work

TECHNICAL INDICATORS Technical indicators have become more important than Fundamentals. With the proper use of technical indicators investors are able to determine what stocks to buy or sell and when. The most important aspect of technical indicators are the PARAMETERS.

Technical Indicators Support Levels Resistance Levels Moving Averages Bollinger Bands Linear Regression Lines MACD Volume Bars Balance of Power * Stochastics Price Rate of Change Time Segmented Volume * Relative Strength Money Stream * Wilders RSI * Leading Indicators

VOLUME It is very important to remember that volume goes with the trend. This means it is normal for volume to increase along with prices and to decrease as prices decline. When volume is going with the trend i.e.. moving in the direction of the price it is telling us one thing and one thing only, the prevailing trend is healthy as far as this relationship is concerned. When prices are declining, it is normal for volume to decline as well. This means downside breakouts from price patterns often occur with relatively low volume. If volume expands as prices decline, this emphasizes the bearishness of the breakout, since it represents greater enthusiasm of sellers. As with all upside breakouts, volume is key. It must expand on the breakout to indicate enthusiasm and therefore a change in the supply and demand in favor of demand.

UPWARD TREND

VOLUME BREAK OUT

MOVING AVERAGES A moving average is the sum of whatever you are examining (closing prices of a stock) for a number of days (20, 30, 50, 100, or 200) then divided by the total number of days. Example $56.06 + $59.31 + $56 + $55.56 + $56 + $57 and $56.26 = $393.93 Now divide $393.93 by 7 (total number of days) = $56.27 average price.

SIMPLE vs. EXPONENTIAL Simple Moving Average: Less of a reaction allowing for a slower and more affective signal. Exponential Moving Average: More reactive causing a faster and less affective signal. Different time frames are used during different market conditions. The shorter the moving average the faster the movement will be.

BUY and SELL POINTS

VOLUME with a M.A. Often you ll find that investors will add a moving average to the volume to alert them when the volume has increased above its daily average. This can be an early sign of a positive or negative break out. The moving average time frame varies with each investors objectives and the market conditions.

Volume with Moving Average

BALANCE of POWER Balance of Power is commonly referred to as BOP. BOP tells us whether the underlying action in the trading of a stock is characterized by systematic buying (accumulation) or systematic selling (distribution). It s plotted above or below its zero line.

ZERO LINE

POSITIVE BOP

BULLISH VOLUME & BOP

BEARISH VOLUME & BOP

BOP DIVERGENCE

M.A. S COME TOGETHER A tight grouping of three moving averages is an indication that the stock price will soon make a major move either up or down. The value of other technical indicators play a major role in determining the direction of the break out.

BULLISH GROUPING

BEARISH GROUPING

MACD MACD is very similar to the price moving averages except that it uses 3 exponential moving averages instead of one or two. 1. Shorter time frame (8-16 days) 2. Longer than the first time frame (18-24 days) 3. Period 5-21 days

MACD PLOTTED as LINES

MACD PLOTTED as HISTOGRAM

PRICE RATE of CHANGE If you apply a 21-day rate of change to the price of a particular stock, the oscillator is calculated by simply dividing the current day's closing price by the closing price twenty-one days ago. The strongest PRC is when both the price and PRC cross above the 50% level (bullish) or below the 50% level (bearish).

ADVANCE WARNING

SHORTING with P.R.C.

TIME SEGMENTED VOLUME Time segmented volume is commonly known as TSV. TSV is referred to as a leading indicator because its movement is based on both the stocks price and volume. Ideal entry and exit points are commonly found as the stock moves across the 50% line.

BULLISH SIGNAL

BEARISH SIGNAL

WILDER S RSI Wilder s RSI is a very commonly used lagging indicator. When used with Time Segmented Volume (TSV) and the right parameters it becomes a very powerful indicator. The combination of a lagging indicator (Wilder s RSI-14) and a leading indicator (Time Segmented Volume-18) helps identify a better entry and exit point.

WILDER S RSI

TIME SEGMENTED VOLUME

RSI TSV

STOCK SCANS Stock scans are similar to a prized family recipe. You add a select amount of certain ingredients (technicals and parameters) to create the perfect recipe. Stock scans can be created for all market conditions giving investors the ability to select good strong investments for all market conditions.

BULLISH SCAN (before)

BULLISH SCAN (after)

BEARISH SCAN (before)

12 Trading Days Later

BEARISH SCAN (after)

KEY TO TECHNICALS 1. Use technical indicators that work with your trading style (short-mid-long term). 2. Change the parameters when the markets change (bullish or bearish). 3. Utilize GOOD stock scans with your most rewarding technical indicators. 4. Back test your beliefs to increase your confidence (minimum of 6 months).

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