Full

Indicator
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Q4 2024

STOCK MARKET EDUCATION SERIES

 Trend Indicators
Trend indicators are used to measure the direction and strength
of a trend using some form of price averaging to establish a
baseline. As price moves above the average, it is a buy signal. If it
moves below the average, it is a sell signal.
 Moving Averages
Moving Averages are very popular indicators of technical analysis.
These measures are used to eliminate noise and identify trends by
smoothing the data. It is broadly used because of its simplicity and
possibility to combine several moving averages together. There
are different types of moving averages - Simple moving average,
Exponential moving average, Weighted moving average, Double
Exponential Moving Average and Volume Adjusted Moving
Average .
In all moving averages, when price is above its moving
average then it indicates buy signal, when it is below its moving
average it signals to sell. The price and moving average will be
frequent so the moving average curve can be followed, if it is
rising, it is a buy signal else it is a sell signal.
Simple Moving Average(SMA):Simple moving average gives
all the days equal weight. It is the main disadvantage of the
Simple moving average.

Exponential Moving Average (EMA): Exponential moving

average, unlike SMA gives higher priority to the actual data.
The current values get higher importance in the EMA
calculation compared to the furthest ones.

Initial SMA: 10-period sum / 10

Weighted Moving Average (WMA): Weighted Moving average
gives higher importance to actual days and lower importance
to the furthest days usually. But the trader has to take decision
which day should be more or less significant.

-WMA = (P1 * 5) + (P2 * 4) + (P3 * 3) + (P4 * 2) + (P5 * 1) / (5

+ 4+ 3 + 2 + 1)
-Where: P1 = current price
-P2 is the price of the previous price, and so forth.

Double Exponential Moving Average: Double Exponential

Moving Average follows the price graph closer than most of
other moving averages, so the lag is lower and the curve is not
so choppy.

DEMA = 2 × EMA(n) − EMA(EMA(n))

Volume Adjusted Moving Average(VAMA): The Volume
Weighted Moving Average is a weighted moving average that
uses the volume as the weighting factor, so that higher volume
days have more weight. It is a non-cumulative moving
average, in that only data within the time period is used in the
calculation.
 Moving Average Convergence/Divergence
(MACD)
MACD was proposed by Gerald Appel. MACD is a momentum
oscillator that indicates the dynamics and strength of the current
trend and oscillates around the zero line in both directions. MACD
consists of three moving averages. Their normal settings are 9, 12
and 26 .Zero Line Crossover - The strategy is to buy when the
MACD crosses above the zero line, and sell when the MACD line
crosses below the zero line. Signal Line Crossover – The strategy
is to buy when the MACD line crosses above the signal line
otherwise, sell.

MACD line = 12 day EMA − 26 day EMA Signal line = 9 day

EMA of MACD line Where EMA = Exponential Moving Average
 Average Directional Movement Index (ADX)
The Average Directional Index (ADX) was developed by Welles Wilder. The
ADX is used to measure the strength or weakness of a trend, not the actual
direction. Directional movement is defined by +DI and -DI. The indicators, Plus
Directional Indicator (+DI) and Minus Directional Indicator (-DI), complement
ADX by defining trend direction. The +DI is the percentage of the true range
that is up. The -DI is the percentage of the true range that is down.Used
together, traders can determine both the direction and strength of the trend.
The strategy is to buy when +DI is greater than –DI and the strategy is to sell
when -DI is greater. Crosses of these directional indicators can be combined
with ADX form a complete trading system. The trend is strong when ADX is
above 25 and no trend is present when below 20. There appears to be a gray
zone between 20 and 25. The values range from 0 to 100, but rarely get above
60. High value of ADX indicates a strong trend and low value indicates a weak
trend.

ADX=100 times the exponential moving average of the absolute

value of (+DI minus -DI) divided by (+DI plus -DI).
 Trend Detection Index(TDI)
The trend detection index (TDI) is used to detect when a trend
has begun and when it has come to an end. The TDI can be used
as a stand-alone indicator or combined with others; it will
perform well in detecting the beginning of trends.An uptrend is
signaled by a positive direction indicator value, whereas a
downtrend is signaled by a negative value. If both TDI and
direction indicator are positive it is a buy signal and if the TDI is
positive and the direction indicator is negative, it is a sell signal.
 Aroon Indicator(Aroon)

The Aroon indicator, developed by technician Tushar Chande and the

word aroon in Sanskrit means "dawn's early light."The Aroon indicator
attempts to show when a new trend is dawning. The indicator consists of
two lines (Up and Down) that measure how long it has been since the
highest high/lowest low has occurred within an n period range.When the
Aroon Up is staying between 70 and 100 then it indicates an upward trend.
When the Aroon Down is staying between 70 and 100 then it indicates a
downward trend. A strong upward trend is indicated when the Aroon Up is
above 70 while the Aroon Down is below 30. Likewise, a strong downward
trend is indicated when the Aroon Down is above 70 while the Aroon Up is
below 30. Also look for crossovers. When the Aroon Down crosses above
the Aroon Up, it indicates a weakening of the upward trend
Vertical Horizontal Filter (VHF)

The Vertical Horizontal Filter was developed by Adam White and

it determines whether prices are trending. When the VHF is rising,
it indicates the formation of a trend. Higher VHF values indicate a
stronger trend. When the VHF is falling, it indicates the trend is
ending and price is becoming congested.
 Momentum Indicators
Momentum indicators help traders to identify the speed of price
movement by comparing prices over time. This type of indicator
is typically applied to price and it is used to analyze volume. It
also gives good entry points when combined with a trend
indicator.
 Relative Strength Index (RSI)
The Relative Strength Index (RSI) was developed by J. Welles
Wilder and it calculates a ratio of the recent upward price
movements to the absolute price movement. The RSI ranges
from 0 to 100. If RSI value is above 70 it indicates overbought
and if it is below 30 it indicates oversold. If the price is making
new highs/lows, and the RSI is not, it indicates a reversal.

RSI = 100 – [100 ÷ ( 1 + (Average Gain During Up Periods ÷

Average Loss During Down Periods ))]
 Stochastic Oscillator(stoch)
The Stochastic Indicator was developed by George C. Lane. It
measures relation between close and the recent trading range.
The values range from 0 to 100. %D values over 75 indicate an
overbought condition; values under 25 indicate an oversold
condition. When the Fast %D crosses above the Slow %D, it is a
buy signal; when it crosses below, it is a sell signal. The Raw %K is
generally considered too erratic to use for crossover signals.

%K = (Closing price at the current moment - Local minimum

for the selected time period) / (Local maximum for the selected
period - Local minimum for the same time interval) *100
 Stochastic Momentum Index(SMI)
Stochastic Momentum Index was developed by William Blau .
The SMI is considered a refinement of the stochastic oscillator.
It is a more reliable indicator, less subject to false swings. It
calculates the distance of the current closing price as it relates
to the median of the high/low range of price.The SMI has a
normal range of values between +100 and -100. Like the
stochastic oscillator, the SMI is primarily used by traders or
analysts to indicate overbought or oversold conditions in a
market. Traders also use the SMI as a general trend indicator,
interpreting values above 40 as bullish trend and negative
values greater than -40 as bearish trend.
 William%R– Williams Percentage Range(WPR)
Williams Percentage Range was developed by Larry Williams. It is very
similar to RSI and Stochastic so it shouldn’t be used in conjunction with
them. It is used to identify the oversold and overbought levels and the
proper entry points. The default setting for Williams%R is 14 periods
which can be days, weeks, months or an intraday timeframe. Indicator
values move in the range of 0 to -100. Values below -80 means that the
asset is oversold and its value will probably rise. Values above -20 mean
that the asset is overbought and its value will probably fall. Some of the
technical analysis prefer to use W%R with the settings to -50 points
upwards/ downwards instead of -80/-20 values.

%R = (Highest High - Close)/(Highest High - Lowest Low) * -100

 Volatility Indicators
Volatility indicators provide useful information about the range
of buying and selling that take place in a given market
information that can help the traders determine potential points
where the market may change direction. They are great to
predict when to exit a position.
 Bollinger Bands(BBands)
Bollinger Bands were developed by John Bollinger. Bollinger Bands
consist of three lines. The middle band is a simple moving average
(generally 20 periods) of the typical price (TP). The upper and lower bands
are F standard deviations (generally 2) above and below the middle band.
The bands widen and narrow when the volatility of the price is higher or
lower respectively. Bollinger Bands do not generate buy or sell signals;
they are an indicator of overbought or oversold conditions. When the price
is near the upper or lower band it indicates there may be a trend reversal.
The middle band becomes a support or resistance level. The upper and
lower bands can also be interpreted as price targets. When the price
bounces off of the lower band and crosses the middle band, then the upper
band becomes the price target.

-Upper band = 20-day SMA + (20-day SD x 2)

-Middle band = 20-day SMA.
-Lower band = 20-day SMA – (20-day SD x 2)
 Donchian channel
It is an indicator used in market trading developed by Richard Donchian.
The Donchian channel is a useful indicator for seeing the volatility of a
market price. If a price is stable the Donchian channel will be relatively
narrow. If the price fluctuates a lot the Donchian channel will be wider. If a
security trades above its highest n day high, then a long is established. If it
trades below its lowest n day low, then a short is established. Enter long
when price crosses above 20-day upper donchain channel and exit when
price reaches 10-day lower donchain channel. Enter short when price
crosses below lower donchain channel and exit when price reaches 10-
day upper donchain channel. To do safe trading 25 day/350-day can be
used as a trend filter. Enter long only when 25-day EMA is above 350 day
EMA, enter short only 25-day EMA is below 350-day EMA.

Upper Channel Line ∶ n − days high; Lower Channel Line: n −

days low; and Center Line: (n − days high + n − days low)/2
 Average True Range (ATR)
The ATR was developed by J. Welles Wilder. It is the moving
average of the True Range. The ATR is a measure of volatility.
High ATR values indicate high volatility, and low values indicate
low volatility, and the price is flat.

Current ATR = [(Prior ATR x 13) + Current TR] / 14