Technical Analysis Quiz 9: Difference between revisions

Latest revision as of 05:04, 31 March 2008

Momentum oscillators in different markets

are used primarily to trade ranging markets.

They can be used to enter trends and as

of trend following indicators at the

of trends.

The moving average oscillator revisited

The

of a trendline or moving average describes the

of the trend.

The moving average oscillator is the

between two moving averages and a measure of

of the trend.

Other

are easier to use.

Momentum and the rate of change

The oscillator known as

is the

between the price

and the price a given time earlier and is a measure of the

of price change.

Rate of change is a very similar

that is the

between the price

and the price a given time earlier.

Trading rules for ranging markets

Rule 1: Go long when the indicator has

into the

zone and rises back above it.

Rule 2: Go short when the indicator has

into the

zone and falls back below it.

Rule 3: Go long on

divergences, where the indicator's first

is in the

zone.

Rule 4: Go short on

divergences, where the indicators first

is in the

zone.

Trading rules trending markets

Rule 1: In an up trend, go long when

turns up from below the

line.

Rule 2: In a down trend, go short when

turns down from above the

line.

Rule 3: Use trend following indicators to

these trends.

on momentum may be used to take profits in a trend, but unless confirmed by a

indicator, these are likely to be only

highs or lows in the trend.

Rule 4: A

drawn on momentum can also be used to confirm a trend following indicator.

Relative strength index (RSI)

The RSI formula measures the

of average

made on up days to average

made on down days over a period. This tells us whether the net

is up or down and how

.

RSI fluctuates between 0 and

. Over bought is set at

and oversold is set at

. In an up trend overbought is set at

and oversold at

. In a down trend overbought is set at

and oversold at

.

Trading rules for ranging markets

Rule 1: Go long when RSI has

below 30 and

back above it.

Rule 2: Go short when RSI has

above 70 and

back below it.

Rule 3: Go long on

divergences, where the first

is below 30. If the divergence forms a

, it is an even stronger signal.

Rule 4: Go short on

divergences, where the first

is above 70. If the divergences forms a

, it is an even stronger signal.

Trading rules for trending markets

Rule 1: In an up trend, go long when RSI falls

the

line and crosses back above it. A failure swing is an even stronger signal.

Rule 2: In a down trend, go short when RSI rises

the overbought line and crosses back below it. A failure swing is an even stronger signal.

Rule 3: Use

indicators to exit these trends. Divergence on RSI may be used to take profits in a

, but unless confirmed by a

indicator, these are likely to be only

highs or lows in the trend.

Rule 4: A trendline or a

or

line on RSI can also be used to confirm a trend following

. Other chart patterns, such as

and

also sometimes appear on the RSI itself, not always matches on the

chart.

Stochastic oscillator

Stochastic measures where the

falls relative to the recent

. When the

moves away from the high or the low, we know that

by the buyer or sellers is

.

Stochastic consists of a fast

lines and a slow

line. They fluctuate between 0 and

. Overbought is set at

and oversold is set at

.

Trading rules for ranging markets

Rule 1: Go long on

divergences, especially where the first

is below

.

Rule 2: Go short on

divergences, especially where the first

is above

.

Trading rules for trending markets

Rule 1: When either

line crosses below

, place a stop order to go

if prices rises above the

of the signal day or any subsequent day with a

. Place a stop loss order below the

of the same day.

Rule 2: When either stochastic line crosses above

, place a stop order to go

if price falls below the low of the signal day or any subsequent day with a

. Place a stop loss order above the

of the same day.

Rule 3: Use

indicators to exit these trends. Divergence on

may be used to take profits in a trend, but unless confirmed by a

indicator, these are likely to be only swing highs or lows in the trend.

Next quiz: Technical Analysis Quiz 10

@@ Line 74: / Line 74: @@
 {
 |type="{}"}
-The RSI formula measures the { ratio } of average { gains } made on up days to averages { losses } made on down days over a period.  This tells us whether the net { momentum } is up or down and how { strongly }.
+The RSI formula measures the { ratio } of average { gains } made on up days to average { losses } made on down days over a period.  This tells us whether the net { momentum } is up or down and how { strongly }.
 {
 |type="{}"}
-RSI fluctuates between { 0-0 } and { 100 }. Over bought is set at { 70 } and oversold is set at { 30 }. These levels are { varied } in trends.
+RSI fluctuates between 0 and { 100 }. Over bought is set at { 70 } and oversold is set at { 30 }.  In an up trend overbought is set at { 80 } and oversold at { 40 }. In a down trend overbought is set at { 60 } and oversold at { 20 }.
 {Trading rules for '''ranging markets'''}
@@ Line 124: / Line 124: @@
 {
 |type="{}"}
-Stochastic consists of a fast { %K } lines and a slow { %D } line.  They fluctuate between { 0-0 } and { 100 }. Overbought is set at { 70 } and oversold is set at { 30 }.
+Stochastic consists of a fast { %K } lines and a slow { %D } line.  They fluctuate between 0 and { 100 }. Overbought is set at { 70 } and oversold is set at { 30 }.
 {Trading rules for '''ranging markets'''}
@@ Line 153: / Line 153: @@
 Next quiz: [[Technical Analysis Quiz 10]]
+[[Category:Technical Analysis|Quiz 09]]