Indicator
Dictionary
WARNING: Studying indicators too long can lead to paralysis
of analysis.
- Accumulative Swing Index
The accumulation swing index
(ASI) is a version of Welles Wilder's swing index.
It plots a running total of the swing index value
of each bar. The swing index is a value from 0 to
100 for an up bar and 0 to -100 for a down bar.
The swing index is calculated by using the current
bar's open, high, low and close, as well as the
previous bar's open and close.
- Aroon Oscillator
A trend-following
indicator that uses aspects of the Aroon indicator
("Aroon up" and "Aroon down")
to gauge the strength of a current trend and the
likelihood that it will continue.
- Aroon Up Down
A technical indicator that
was developed by Tushar Chande in 1995 and used
for identifying trends in an underlying instrument
(Currency) and the likelihood that the trend will
reverse. It's made up of two lines. The first one
is called "Aroon-up", which measures the
strength of the uptrend, and the other line is called
"Aroon-down", which measures the downtrend.
The indicator reports the time it takes for the
price to reach, from a starting point, the highest
and lowest points over a given time period, each
reported as a percentage of total time.
Both the Aroon-up and the Aroon down fluctuate between
0 and 100, with values close to 100 indicating a
strong trend, and zero indicating a weak trend.
The lower the Aroon up, the weaker the uptrend and
the stronger the downtrend, and vice versa. The
main assumption underlying this indicator is that
a currencies price will close at record highs in
an uptrend, and record lows in a downtrend.
- Average True Range
Developed
by J. Welles Wilder and introduced in his book,
New Concepts in Technical Trading Systems (1978),
the Average True Range (ATR) indicator measures
a security's volatility. This indicator does not
provide any indication of price direction or duration,
simply the degree of price movement or volatility.
- Bollinger Bands
A band that is plotted two standard
deviations away from a simple moving average. Because
standard deviation is a measurement of volatility,
Bollinger bands adjust themselves to the market
conditions.
When the currency markets become more volatile,
the bands tend to widen (move further away from
the average), and during less volatile periods,
the bands contract (move closer to the average).
The tightening of the bands can be used as an early
indication that the volatility is about to increase
sharply. This
is one of the most popular technical analysis techniques.
The closer the prices move to the upper band, the
more overbought the market, and the closer the prices
move to the lower band, the more oversold the market.
- Chaikin Volatility
An oscillator
created by subtracting a 10-day EMA from a 3-day
EMA of the accumulation/distribution line.
- Chande Momentum Oscillator
A
technical momentum indicator invented by the technical
analyst Tushar Chande. It is created by calculating
the difference between the sum of all recent gains
and the sum of all recent losses and then dividing
the result by the sum of all price movement over
the period. This oscillator is similar to other
momentum indicators such as the Relative Strength
Index and a Stochastic Oscillator because it is
range bound (+100 and -100).
- Commodity Channel Index
Developed
by Donald Lambert, the Commodity Channel Index (CCI)
was designed to identify cyclical turns in various
Markets. It's assumption is that currencies trend
in cycles, with highs and lows coming at periodic
intervals. Lambert recommended using 1/3 of a complete
cycle (low to low, or high to high) as a time frame
for the CCI. (Note: Determination of the cycle's
length is independent of the CCI.) If the cycle
runs 60 days (a low about every 60 days), then a
20-day CCI would be the setting.
- Commodity Channel Index
Avg.
A way of
smoothing out the CCI. A Moving Average of the CCI
(above).
- Detrend Price Oscilator
Removes long-term trend information
from the data so that shorter-term cycle information
can be studied.
- Directional Movement System
The Directional
Movement System has three parts to it. Developed
by J. Welles Wilder for identifying when a definable
trend is present in a Currency.
ADX is an Oscillator that fluctuates between 0 and
100. Even though the scale is from 0 to 100, readings
above 60 are rare. Low readings, below 20, indicate
a weak trend and high readings, above 40, indicate
a strong trend. The indicator does not grade the
trend as bullish or bearish, you must figure that
out, but it merely assesses the strength of the
current trend.
A reading above 40 can indicate a strong downtrend
as well as a strong uptrend.The scale for the DMI
is from 0 to 100. The average directional movement
index (ADX) is a moving average of the DMI. -DM
& +DM are also graphed for referrence.
- Exponential Moving Average
A type of
moving average that is similar to a simple moving
average, except that more weight is given to the
most recent data. Also known as "exponentially
weighted moving average".
This type of moving average reacts
quicker to recent price changes than a simple moving
average.
- Fractal Chaos Bands
Fractal Chaos
Bands are used similarly to Bollinger-bands, offering
trading opportunities when price moves beyond the
fractal lines.
- High Minus Low
High minus
Low is a linear indicator showing the difference
between the high and low of the bar. Using trendlines
and looking for breakouts can yield profitable situations.
- Linear Regression Forecast
Linear Regression
is a statistical measurement that attempts to determine
the strength of the relationship between one dependent
variable (usually denoted by Y) and a series of
other changing variables (known as independent variables).
The markets don't have to
be non-linear, that's what the LR analysis is trying
to do. In this case the Linear Regression
Forecast (LRF) set to 14 periods creates a line
that follows price tightly and somewhat predicts
prices movement. Combining the Linear Regression
Forecast (LRF) with the Linear Regression Intercept
(LRI) can provide excellent entry signals at the
line crosses following the overall trend.
- Linear Regression Intercept
Used with the (LRF)
set to follow fewer bars (9) than the (LRF).
- Linear Regression R-Squared
Takes random bar
price variables and works out a linear equation
to explain the relationship, smoothed by squaring.
A slightly different way of calculating regression.
Creates a Histogram that shows relative bullish
vs. bearish strength. Compare with Linear Regression
Slope.
- Linear Regression Slope
Linear Regression
Slope (LRS) creates a Histogram similar to a MACD,
but based on the regession of the slope.
- MACD
Moving Average
Convergence/Divergence (MACD), Developed by Gerald
Appel, is one of the simplest and most reliable
indicators available. MACD uses moving averages,
which are lagging indicators, to include some trend-following
characteristics.
These lagging indicators are turned into a momentum
oscillator by subtracting the longer moving average
from the shorter moving average. The resulting plot
forms a line that oscillates above and below the
zero line, without any upper or lower limits.
MACD is a centered oscillator and the guidelines
for using centered oscillators apply. MACD gives
bullish signals from three main sources: Positive
Divergence, Bullish Moving Average Crossover, or
the Bullish Centerline Crossover. Bearish signals
are formed by the three opposite signals.
- Median Price
The midpoint
of the high and low of the bar is plotted over Price
bars in linear form.
- Momentum Oscillator
Created by calculating the difference
between the sum of all recent gains and the sum
of all recent losses and then dividing the result
by the sum of all price movement over that period.
- Moving Average Envelope
A simple moving average line can
be enhanced by surrounding the line pattern with
parallel envelopes. These envelopes deviate from
the the moving average line by a user-specified
percentage in order to determine when prices have
strayed from the moving average line by that percentage.
For example, charting 2% envelopes would display
an upper parallel line that is 2% above the MA line,
and a lower parallel line that is 2% below the MA
line.
- Parobolic SAR
Developed by Welles Wilder, creator
of RSI and DMI, the Parabolic SAR sets trailing
price stops for long or short positions. Also referred
to as the stop-and-reversal indicator (SAR stands
for "stop and reversal"), Parabolic SAR
is more popular for setting stops than for establishing
direction or trend.
Wilder recommends establishing the trend first,
and then trading with Parabolic SAR in the direction
of the trend. If the trend is up, buy when the indicator
moves below price. If the trend is down, sell when
the indicator moves above price.
- Price Oscillator
The Price Oscillator is a linear
indicator based on the difference between two chosen
moving averages, and is expressed as either a percentage
or in absolute terms. The number of time periods
can vary depending on your preference. Enhanced
by the use of Range Bars.
- Price ROC
The Rate of Change (ROC) indicator
is a very simple yet effective momentum oscillator
that measures the percent change in price from one
period to the next. The ROC calculation compares
the current price with the price, a given number
of periods ago.
- Rainbow Oscillator
A technical indicator invented by
Larry Williams that uses the weighted average of
three different time periods to reduce the volatility
and false signals that are associated with other
indicators that mainly rely on a single time period.
This is a range-bound indicator, which means the
value fluctuates between 0-100.
- Relative Strength Indicator
Developed by J. Welles Wilder and
introduced in his 1978 book, New Concepts in Technical
Trading Systems, the Relative Strength Index (RSI)
is an extremely useful and popular momentum oscillator.
The RSI compares the magnitude of a Currencie's
recent gains to the magnitude of its recent losses
and turns that information into a number that ranges
from 0 to 100. It takes a single parameter, the
number of time periods to use in the calculation.
In his book, Wilder recommends using 14 periods.
- Simple Moving Average
A simple moving average is
just the arithmetic mean. If one wanted to calculate
a 6-day simple moving average, then you would just
add the closing prices from the last five trading
days and would divide that figure by 6.
A question about moving averages that seems to weigh
on many swing traders' minds is whether to use the
"simple" or "exponential" moving
average. Maybe
because of its name, an exponential moving average
sounds more sophisticated or more elegant than the
simple moving average. The simple moving average
may sound, perhaps, too simple.
- Standard Deviation
A measure of the dispersion of a
set of data from its mean. The more spread apart
the data, the higher the deviation. Standard deviation
is calculated as the square root of variance. Standard
deviation is a statistical term that provides a
good indication of volatility. It measures how widely
values (closing prices for instance) are dispersed
from the average.
Dispersion is the difference between the actual
value (closing price) and the average value (mean
closing price). The larger the difference between
the closing prices and the average price, the higher
the standard deviation will be and the higher the
volatility. The closer the closing prices are to
the average price, the lower the standard deviation
and the lower the volatility.
This is indicator is graphed in linear form and
is used to spot volitility increases.
- Stochastic %K%D
A very fleixble indicator using fast
and slow version of the Stochastic plotted around
the same zero line. You can create these lines using
simple or exponential averages, as well as variable
periods and various sources. Overbought and oversold
areas are around >30 & <-30 based on inputs.
- Swing Index
The swing index was created by Welles
Wilder. It plots a running total of the swing index
value of each bar. The swing index is a value from
0 to 100 for an up bar and 0 to -100 for a down
bar. The swing index is calculated using the current
bar's open, high, low & close, as well as the
previous bar's open & close.
- Time Series Moving Average
Time series analysis can be useful
to see how a given asset, currency or economic variable
changes over time and how it changes compared to
other variables over the same time period.
- Triangle Moving Average
The triangular moving average derives
its name from the way the weighting factors are
applied to the un- smoothed data. For example, for
a 7 period moving average, the weighting factors
are 1, 2, 3, 4, 3, 2, 1.
- TRIX
TRIX is a momentum indicator that
displays the percent rate-of-change of a triple
exponentially smoothed moving average of a security's
closing price. It was developed in the early 1980's
by Jack Hutson, an editor for Technical Analysis
of Stocks and Commodities magazine.
Oscillating around a zero line, TRIX is designed
to filter out price movements that are insignificant
to the larger trend of the currency. The user selects
a number of periods (such as 15) with which to create
the moving average, and those cycles that are shorter
than that period are filtered out.
The TRIX is a leading indicator and can be used
to anticipate turning points in a trend through
its divergence with the currencie's price. Likewise,
it is common to plot a moving average with a smaller
period (such as 9) and use it as a "signal
line" to anticipate where the TRIX is heading.
TRIX crossovers with its "signal line"
can be used as buy/sell signals as well.
- True Range
A histogram of the high-minus
the low of the given bar series. To ensure positive
numbers, absolute values are applied to differences.
- Typical Price
The typical price is the average
of the high, low and close. Typical Price = (High
+ Low + Close)/3
- Ultimate Oscillator
A technical indicator created by
Larry Williams that uses the weighted average of
three different time periods to reduce the volatility
and false signals that are associated with many
indicators that mainly rely on a single time period.
This indicator is range-bound as the value fluctuates
between 0 and 100 .
- Variable Moving Average
Variable moving averages change the weighting based
on volatility of prices.
- Vertical Horizontal Filter
Vertical
Horizontal Filter (VHF) was created by Adam White
to identify trending and ranging markets. VHF measures
the level of trend activity, similar to ADX in the
Directional Movement System.
Vary the number of periods in the VHF to suit different
time frames. White prefers an 18-day window smoothed
with a 6-day moving average.
- Weighted Close
Weighted Close is similar to Typical
Price - the main difference being that the weighted
close, as the name implies, place greater weighting
on closing price. This indicator approximates the
average price traded for a period and is used as
filters in moving average systems.
- Weighted Moving Average
A type of moving average that assigns
a higher weighting to recent price data than does
the common simple moving average.
This average is calculated by taking each of the
closing prices over a given time period and multiplying
them by its certain position in the data series.
Once the position of the time periods have been
accounted for, they are totaled and divided by the
sum of the number of time periods.
- Welles Wilder Smoothing.
Welles Wilder described 1/14 of current
period's data + 13/14 of previous period's average
as a 14-period exponential moving average.
- Williams %R
Developed by Larry Williams, Williams
%R is a momentum indicator that works much like
the Stochastic Oscillator. It is especially popular
for measuring overbought and oversold levels. The
scale ranges from 0 to -100 with readings from 0
to -20 considered overbought, and readings from
-80 to -100 considered oversold.
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