DealBook® 360: Technical Indicators

GFT customers with a bronze account receive free access to the following indicators.

Average True Range

The Average True Range is a moving average of the true range, which is the difference between the true range high and true range low.

The current true range high is the current high or the previous close, whichever price is greater. The current true range low is the current low or previous close, whichever is lower. These values also take price changes during off-hours trading into account.

The Average True Range measures a given forex trading market's volatility. High values indicate that currency trading prices are changing a large amount during the day, while low values indicate that prices are staying relatively constant. Both trending and level prices can have high or low volatility.

High volatility levels in forex may be used to time trend reversals, such as market tops and bottoms. Low volatility levels may be used to time the beginning of new upward currency trading price trends following periods of consolidation.

Bollinger Bands

Bollinger Bands are calculated by taking the moving average of the data for a given period of time and adding or subtracting the specified number of standard deviations from the same period, forming an "envelope" around a data field. Because Bollinger Bands use a moving average, the value at the beginning of a data series is not defined until there are enough values to fill the given period.

Bollinger Bands can help you determine whether current values of a data field are behaving normally or breaking out in a new direction. For example, when the closing price of a forex market increases above its upper Bollinger Band, it will typically increase in that direction.

Bollinger Bands are also useful for identifying trend reversals, which are typically indicated by new highs or lows outside of the bands followed by another high/low inside the bands.

Since the standard deviation can be used as a forex volatility indicator, the current width of the envelope can also be used for trend information. A narrow envelope indicates a low volatility while a wide envelope indicates higher volatility. High volatility levels are sometimes used to time trend reversals such as market tops and bottoms, and low volatility levels can sometimes be used to time the beginning of new upward price trends after periods of consolidation.

They are a useful forecasting tool showing that moves beginning at one band tend to go all the way to the other band.

Bollinger Bands share many characteristics with Trading Bands, except Trading Bands do not vary in width based on volatility.

Dynamic Momentum

The Dynamic Momentum Index (DMI) is similar to the Relative Strength Index (RSI), except the DMI uses variable time periods (from 3 to 30) versus the RSI's fixed periods.

The DMI's time period variability is controlled by recent volatility of currency trading prices. The more volatile the prices, the more sensitive the DMI is to price changes. In a quieter market the DMI will use more time periods, while fewer are used during more active markets. Because of this, the DMI is more sensitive to fluctuations in the forex market and displays changes more rapidly than the RSI.

Linear Regression

The Linear Regression indicator is calculated by fitting a linear regression line over the values for the given period, and then determining the current value for that line. A linear regression line is a straight line which is as close to all of the given values as possible.

The linear regression indicator at the beginning of a data series is not defined until there are enough values to fill the given period.

This function is the same as the Time Series Moving Average. It is also the same as the Time Series Forecast with an offset of zero.

MACD

The Moving Average Convergence/Divergence (MACD) is calculated by subtracting the value of a 26-day exponential moving average from the value of a 12-day exponential moving average.

The value of the MACD at the beginning of a data series is considered to be zero. Because the MACD uses exponential moving averages, its initial values will include the zero value in its calculation. Therefore, you may want to ignore the values before the 26th value, when the effect on the longer moving average is no longer significant.

The MACD is a specific instance of a Value Oscillator and is typically used on the closing price of a forex market to detect price trends. When the MACD increases, the prices are trending higher, and the prices are trending lower when the MACD is decreasing.

The MACD is traditionally traded against a 9-day exponential average of its value, called its signal line. The MACD Signal Line function is provided to generate this value. When the MACD increases above its signal line, a buy signal is generated. When the MACD decreases below its signal line, a sell signal is generated.

Accumulation Swing

The Accumulation Swing indicator is an oscillator based on the swing index (SI). A currency trading price buying signal is generated when the daily high exceeds the previous SI significant high, and a currency trading price selling signal occurs when the daily low dips below the significant SI low.

The Accumulation Swing Index attempts to show the real forex trading market, so it closely resembles actual prices. This allows usage of classic support/resistance analysis on the Index. Typical analysis involves looking for breakouts, new highs and lows, and divergences.

Aroon

The Aroon indicator can help determine whether a currency trading price is moving in a trend or sideways, as well as strength of the trend. If a currency trading price is rising, the close for the period will be closer to the end of the period, and vice versa. The Aroon indicator shows (by percentage) how much time passed between the highest (up) or lowest (down) close since the beginning of a period.

When Aroon (up) and Aroon (down) move together, there is no clear trend (the price is moving or is about to move sideways). An Aroon (up) below 50 indicates that the uptrend is losing its momentum, while an Aroon (down) below 50 indicates that the downtrend is losing its momentum. An Aroon (up) or Aroon (down) above 70 indicates a strong trend in the same direction, while a value below 30, indicates a trend coming in the opposite direction.

For the Aroon Oscillator, the positive value indicates an upward trend (or coming trend), and the negative value indicates a downward trend. The higher the absolute value of an oscillator, the stronger the indication of a trend.

Chande Momentum

The Chande Momentum indicator is a momentum oscillator and can be used as a trading signal in two different ways. The first is to measure overbought or oversold levels for a given currency. The second method is to buy when the oscillator crosses above its moving average line and to sell when the oscillator crosses below its moving average line.

The Chande Momentum indicator is constructed using the sum over a given period of price changes on up days, sum (high-low) up, and the sum over the same period of prices on down days, sum (high-low), down. An exponential moving average of this line is then overlaid upon the oscillator as a signal line. The oscillator requires two parameters: the period over which the price ranges will be summed, and the period for the moving average.

Chikou Span

Please see Ichimoku.

Commodity Channel Index

The Commodity Channel Index (CCI) determines how far the current price has been from the recent average. High values indicate multiple days with higher than average prices, while low values indicate multiple days with lower than average prices. The CCI is not defined until there are enough values to fill the given period.

The CCI can be used as an overbought/oversold indicator or for detecting divergences from the price trend.

When watching the CCI in relation to the current price, it is useful to watch for new highs and lows. If the price of the forex trading market is reaching new highs and the CCI is not reaching new highs, a price correction may be coming.

The CCI typically ranges in value -100 to +100. Values above this range indicate that the particular forex market may be becoming overbought; values below this range indicate it may be becoming oversold. As with other overbought/oversold indicators, this can often mean the price will correct to more typical levels.

Commodity Selection Index

The Commodity Selection Index ("CSI") is a momentum indicator that can be useful in selecting commodities suitable for short-term trading.

A high CSI rating indicates that the commodity has strong trending and volatility characteristics. The trending characteristics are brought out by the Directional Movement factor in the calculation, and the volatility characteristics are brought out by the Average True Range factor.

DEMA

Double Exponential Moving Average ("DEMA") is a unique composite of a single exponential moving average and a double exponential moving average that provides less lag than either of the two components individually. DEMA can be used in place of trading traditional moving averages.

Detrended Price Oscillator

The Detrended Price Oscillator (or DPO) attempts to eliminate the trend in prices.

Long-term cycles are made up of a series of short-term cycles. By analysing these shorter-term components of the long-term cycles you may identify major turning points in the longer-term cycle. The DPO helps you remove these longer-term cycles from prices.

To calculate the DPO, create an n-period simple moving average (where "n" is the number of periods in the moving average). Then, subtract the moving average "(n / 2) + 1" days ago from the closing price. The result is the DPO.

Directional Movement - ADXR

The ADXR takes the ADX value of a bar and averages it with the ADX value of a recent, trailing bar. This has smoothes the ADX values. As with the ADX, a rising ADXR could indicate a strong underlying trend, while a falling ADXR may suggest a weakening trend subject to a reversal. ADXR can also identify non-trending markets or the deterioration of an ongoing trend. Although market direction is important in its calculation, the ADXR is not a directional indicator.

The ADXR differs from ADX because it is not as sensitive to short, quick reversals because it results in a 'smoother' calculation. It was developed to help compensate for the variance of excessive tops and bottoms, and is especially helpful when used in conjunction with trend-following strategies. Strategies that rely on volatility as an indication of movement may not take into account that fact that movement does not necessarily indicate volatility. ADXR provides information pertaining to the strength of a trend, helping you to manage the risk of trading in volatile markets that fluctuate between trending and non-trending.

Directional Movement - DX

The Directional Movement Index ("DMI") is designed to highlight the strength of any upward or downward trend in the market. It is composed of DI+ and DI-, which respectively show the strength of the increasing and decreasing prices and Average Directional Index ("ADX"), which determines trend strength. ADX is a moving average of the Directional Index ("DX") with a smoothing constant that is double the size of the time period selected for measuring upward and downward movements.

In a DMI-based trading system, a buy signal is given when the DI+ value becomes greater than the DI -. For a sell signal, look for the point where DI - becomes greater than DI+. In both cases, FX trading signals are only generated if a relatively strong trend is detected, for example, in the case that the value of ADX is higher than 25%.

Envelope

Envelopes are used to indicate the fx trading range of a given forex trading market above and below an average price. In this case, an exponential moving average is taken against the forex market, and then a trading band is applied by adding and subtracting a fixed percentage of the average on that day. This will calculate the price 5% above and 5% below the average.

Fast Stochastics

The Fast Stochastic indicator calculates the location of a current price relative to its range over a period of bars. By default, the indicator uses the most recent 14 bars (input Length), the high and low of that period to establish a range (input HighValue and LowValue) and the close as the current price (input CloseValue). This calculation is then indexed and plotted as FastK. A smoothed average of FastK, known as FastD, is also plotted. FastK and FastD plot as oscillators with values from 0 to 100. The direction of the Stochastics should confirm price movement. In other words, rising Stochastics confirm rising prices and vice versa.

Stochastics may be useful in identifying turning points when there are non-confirmations or divergences. For example, a new high in price without a new high in Stochastics may indicate a false breakout. When Stochastics reach extreme highs or lows, it may indicate overbought or oversold conditions. Additionally, FastK crossing above the smoother FastD can be a buy signal and vice versa.

Forecast Oscillator

An extension of the linear regressing-based indicators, the Forecast Oscillator is a percentage comparison of the price of an issue and the price as indicated by the Time Series Forecast Oscillator.

When the oscillator is above zero, a forecast price greater than the actual price is projected. Conversely, it's less than zero if it's below. The oscillator would plot as zero when the forecast price and the actual price are the same. Prices that are persistently below the forecast price suggest lower prices ahead. Actual prices that are persistently above the forecast price suggest higher prices ahead.

Inertia

The Inertia indicator measures the momentum of a currency trading price based on its volatility. An extension of the Relative Volatility Index, Inertia is simply a smoothed RVI.

Inertia is measured on a scale from 0 to 100. An indicator below 50 shows negative Inertia, while an indicator above 50 shows positive Inertia. Signs of positive Inertia suggest a long-term upward trend, while negative Inertia indicates long-term downtrends.

Intraday Momentum

The Intraday Momentum Index ("IMI") is a composite of the Relative Strength Index and Candlestick Analysis.

The IMI is calculated like the RSI but uses the relationship between the intraday opening and closing prices to determine whether the day is up or down. When the close is above the open, it is an up day. If the close is below the open, it is a down day. White candlesticks signify an up day, black candlesticks are used for down days.

As with the RSI, overbought conditions (and lower prices ahead) are indicated when the index rises above 70. Values below 30 indicate a potential oversold situation and higher price ahead. Remember, as with all overbought/oversold indicators, you should first quantify the trendiness of the forex market before acting on any signals.

Ichimoku

The Ichimoku Kinko Hyo indicator determines forex market trends, levels of support and resistance, and generates buy and sell signals. This indicator works best on the week and day time forex charts.

When assigning a dimension of parameters, four time frames of different extent are used. The significances of the separate lines that make up this indicator are based on these intervals:

If the price is found above a cloud, its upper line will derivate the first level of support, and second - second level of support. If the price is found under a cloud, the lower line will derivate the first level of resistance, in upper - second.

If the line, Chinkou Span, intersects the chart of the price bottom-up, it is a signal to buy. If it intersects top-down, it is a signal to sell.

Kijun-sen is used as a parameter of movement in the forex market. If the price is higher than the Kijun-sen, the price will most likely rise. When the price intersects this line, changes in the trend are likely.

An alternative version of usage for the Kijun-sen is the submission of signals. The buy signal is generated when the line Tenkan-sen intersects Kijun-sen bottom-up and a sell signal is generated when the Tenkan-sen intersects Kijun-sen top-down. Tenkan-sen is used as the indicator of a forex market trend. If this line grows or drops, the trend exists. When it goes horizontally, the forex market has come into the channel.

Kairi

Used as either a trend indicator or an overbought/oversold signal, the Kairi indicator charts the percentage difference between the current closing value and its simple moving average.

Keltner Channel

Similar to Bollinger Bands in the way the distance of the upper and lower bands from the average will vary according to underlying price volatility, the Keltner Channel plots two bands around a central modified moving average. However, while Bollinger Bands use standard deviation in the calculation, Keltner bands use Average True Range.

J Welles Wilder Jr. developed True Range to represent the real highs and lows of the day and include possible gaps from the prior bar's close to the current bar's open. This tool was originally intended for the futures and equities markets where there is a significant time gap between the close and the following day's open. In this way, True Range is calculated by taking the maximum of:

1. High - Low
2. The prior bar's close - Low
3. High - the prior bar's close

However, because there is no time difference between one day's close and the next day's open, it is very unusual for these gaps to occur in the forex market. A gap can only really effectively occur over weekends or during volatile market conditions.

A modified average is then taken of a series of True Range calculations. If there has been a significant level of high range bars, the upper and lower bands will move away from the average while a series of low range bars will cause the bands to move inwards towards the average. Thus Keltner Bands will automatically expand and contract as market volatility rises and falls.

Basic Keltner Channels usage is two-fold:

1. In consolidating markets, the upper and lower bands may be considered as approximate support and resistance where trades may be considered to take advantage of range trading.

2. Where price breaks cleanly through and closes outside one of the bands there is a higher risk of a trend in the direction of the break developing.

3. The central moving average may be used as a trailing stop when in a trending move

Remember, trades should not be initiated on the basis of one indicator alone. Using other techniques such as momentum indicators (i.e., RSI, Stochastics, etc.) to help confirm or deny the entry signals is highly recommended. Reference to price patterns is also preferred.

Parameter Defaults: Period = 12 (controls the measurement period for the average)
Factor = 1 (controls the placement of the bands around the average)

Plots: Upper KC Upper Band line, Mid KC Central Moving Average, Lower KC Lower Band line

Formula:

Mid KC = "Period" length modified moving average

Upper KCv = Mid KC + "Period" length Average True Range x Factor

Lower KC = Mid KC - "Period" length Average True Range x Factor

Kijun Sen

Please see Ichimoku.

Linear Regression Slope

Linear regression is a statistical tool used to predict future forex market values relative to their past values, and is normally plotted on a price chart as a straight line like a trend line. The Linear Regression indicator, however, does not plot a straight line - it curves through price activity. The curve is a result of plotting a line through each end point of invisible linear regression trend lines. Each invisible trend line plots the minimal distance between closing prices, using the "least squares" method, over the number of bars defined in the input, LENGTH.

The indicator helps to determine where a forex market's price might be in the near future using current and past price history. If prices are trending up, linear regression attempts to logically determine what the upward bias of the price may be relative to the current price. If prices are trending down, it will attempt to determine the downward bias of the price. Some analysts believe that when prices rise above or fall below the linear regression line; they are overextended and will begin to move back towards the line. Thus, the line is used to monitor when a price move may change direction.

Mass Index

The Mass Index uses a range of bars to calculate several values, including exponential averages of the ranges. It then calculates and plots an index of these calculations. The Mass Index is used in trending markets to monitor direction and warn of potential directional changes.

A possible price reversal is indicated when the Mass Index line crosses above the setup line then falls below the trigger line. This is known as a reversal bulge. Please note, the Mass Index does not identify the trend direction, but rather warns of possible reversals.

Median Price

Also referred to as the mean or average price, the Median Price function calculates the midpoint between the day's high and low prices.

Providing a simplified view of the currency trading prices for the day, the median price can be used to smooth out some of the volatility of the closing price because it includes information for the entire trading day rather than just the end of the day.

The median price can be used wherever a closing price or other single price field would be used.

Momentum

The Momentum indicator calculates and plots the net change, expressed in points, between each bar's price, as specified by the input Price, and that price the number of bars ago specified in the input Length. The default settings calculate and plot the net change between the close of a bar and the close ten bars earlier. Measuring current prices versus earlier prices sheds light on the pace of a trend and possible trend reversals. It may also be useful in identifying overbought and oversold conditions when the Momentum becomes extremely strong or weak.

Moving Average Exponential

This indicator is calculated by combining a certain percentage of the current value with an inverse percentage of the previous value of the exponential moving average. For example, if 25% weight is being given to the current value, 25% of the current value is added to 75% of the previous moving average to get the current moving average.

The period is used to determine the relative weight which previous values should be given. The formula 2/ (period+1) is used to determine the percentage. For example, a period of 7 would cause 25% (2/ (7+1)) of the current value and 75% of the previous exponential moving average value to be used.

NOTE: All previous values are used to make up a current exponential moving average, even values from before the period. The period is used as a rough estimate of how long new values will remain significant in calculation.

Because value at the beginning of a data series is considered to be zero, you may want to ignore the values before the period has completed.

Price data can vary greatly from day-to-day, obscuring whether the price is going up or down over time. Moving Averages are useful for smoothing raw, noisy data, such as daily prices, giving a more general picture of the underlying trends.

This tendency to show overall trends allows you to use moving averages to see whether data is bucking the trend. Entry/exit systems often compare data to a moving average to determine whether it is supporting a trend or starting a new one.

Moving Average Modified

The Modified Moving Average ("MMA") is an algebraic technique which makes averages more responsive to price movements. The average includes a sloping factor to help it catch up with the rising or falling value of the currency trading price. The first point of the Modified Moving Average is calculated the same way as the first point of the Simple Moving Average (see below). However, all subsequent points are calculated by first adding the new price and then subtracting the last average from the resulting sum. The difference is the new point, or MMA.

Moving Average Simple

Sometimes called an arithmetic moving average, the Simple Moving Average ("SMA") indicator is calculated by summing the closing prices of the currency for a period of time and then dividing this total by the number of time periods. It is basically the average price over a period of time.

The Simple Moving Average gives equal weight to each daily price, so the longer the time period studied, the greater the smoothing out of recent forex market volatility. Long-term moving averages smooth out all the minor fluctuations showing only longer-term trends. Shorter-term moving averages will show shorter-term trends but at the expense of the long-term.

Most of the time, prices are on one side or the other of the moving average. As trends develop, the moving average will slope in the direction of the trend, showing the trend direction and some indication of its strength based on the steepness of the slope.

Moving Average Triangular

The Moving Average Triangular indicator calculates a simple arithmetic average of prices, specified by the input Price. It then calculates and plots a simple arithmetic average of this average. The length of each of these averages is one more than half the value specified in the input Length, rounded to a whole number. This uses all the price data from the most recent number of bars specified by the input Length, but with the smoothing effect of "averaging the average".

A moving average is generally used for trend identification. Attention is given to the direction in which the average is moving and to the relative position of prices and the moving average. Rising moving average values (direction) and prices above the moving average (position) would indicate an uptrend. Declining moving average values and prices below the moving average would indicate a downtrend. A displaced moving average plots the moving average value of a previous bar or later bar on the current bar.

Moving Average Weighted

The weighted moving average is calculated by averaging together the previous values over the given period, including the current value. These values are weighted linearly, with the oldest value receiving a weight of 1, the next value receiving a weight of 2, and so on up to the current value, which receives a weight equal to the period.

The moving average at the beginning of a data series is not defined until there are enough values to fill the given period.

NOTE: For more exaggerated weighting on the current values, you may want to use an exponential moving average. You could also average two or more weighted moving averages together.

Moving Averages are useful for smoothing raw, noisy data, such as daily prices. Price data can vary greatly from day-to-day, obscuring whether the price is going up or down over time. By looking at the moving average of the price, a more general picture of the underlying trends can be seen.

Since moving averages can be used to see trends, they can also be used to see whether data is bucking the trend. Entry/exit systems often compare data to a moving average to determine whether it is supporting a trend or starting a new one.

Parabolic SAR

Since moving averages can be used to see trends, they can also be used to see whether data is bucking the trend. Entry/exit systems often compare data to a moving average to determine whether it is supporting a trend or starting a new one.

Once a Parabolic SAR is reached, the current position is exited and a new position in the opposite direction is taken. It is primarily used in trending markets and is based on always having a position in the forex market. The indicator may also be used to determine stop points and estimate when you may want to reverse a position and take a trade in the opposite direction. The indicator derives its name from the fact that when charted, the pattern resembles a parabola or French curve.

Percent Change

The Percent Change indicator calculates and plots the net change, expressed as a percent, between a bar's price, as specified by the input Price, and that price the number of bars ago specified in the input Length. The default settings plot the percent change for the close of each bar compared to the bar before it. This indicator is a quick and easy method of viewing price swings on a bar-by-bar basis illustrating price volatility.

Percent of Resistance

The Percent of Resistance ("PCR") indicator is an oscillator that compares a currency's closing price to its price range over a given time period.

Percent R

The Percent R indicator is an overbought/oversold oscillator that is best applied to choppy markets and markets locked in a sideways price pattern or trading range. However, it can also be used to indicate when to buy on troughs in bull markets and sell on rallies in bear markets. Generally, this indicator can help you take advantage of shorter-term countertrend moves occurring within longer-term trends as well as indicate the best time to exit or enter a particular forex market.

An oversold market is believed to occur when the Percent R line is less than the buy zone line. Conversely, an overbought market is believed to occur when the Percent R line is greater than the sell zone line.

Price Channel

The Price Channel indicator calculates the highest high and lowest low of the trailing number of bars specified by the input Length. Lines representing the trailing highs and the trailing lows are then plotted. Strength is indicated when a forex market moves above the upper band, while weakness is indicated by a forex market moving below the lower band. A sustained move above or below the channel lines may indicate a significant breakout.

This indicator is NOT displaced by default. Changing the input Displace to a positive number displaces the plot to the left. Changing the input Displace to a negative number displaces the plot to the right.

Price Oscillator

The Price Oscillator indicator calculates a fast or short moving average and a long or slow moving average and then plots the difference between the two. The moving averages are not plotted. One approach to analysing moving averages is to note the relative position of the two averages: seeing the short moving average above the long moving average would yield a positive Price Oscillator value and be bullish, while seeing the short moving average below the long moving average would yield a negative Price Oscillator value and be bearish.

Calculating the difference between the two averages and plotting this as an oscillator makes extreme positive and negative values stand out as possible overbought and oversold conditions.

Relative Strength Index

The Relative Strength Index ("RSI") is based on a ratio of the average upward changes to the average downward changes over a given period of time. It has a range of 0 to 100, with values typically remaining between 30 and 70. Lower values indicate oversold conditions while higher values indicate overbought conditions.

The RSI at the beginning of a data series is not defined until there are enough values to fill the given period. In addition, the value is defined as 100 when no downward changes occur during the given period.

The RSI is typically used with a 9, 14, or 25 calendar day (7, 10, or 20 trading day) period against the closing price of a forex market or commodity. The more days that are included in the calculation, the less volatile the value. The Relative Momentum Index ("RMI") is an extension of the RSI which provides an additional smoothing parameter.

The RSI usually leads the price by forming peaks and valleys before the price data, especially around the values of 30 and 70. In addition, when the RSI diverges from the price, the price will eventually correct to the direction of the index.

Relative Volatility

The Relative Volatility Index ("RVI") is the RSI, only with the standard deviation over the past 10 days used in place of daily price change. Use the RVI as a confirming indicator, as it makes use of a measurement other than price as a means to interpret forex market strength.

The RVI measures the direction of volatility on a scale from zero to 100. Readings greater than 50 indicate that the volatility is more to the upside. Readings less than 50 indicate that the direction of volatility is to the downside.

Rate of Change

The Rate of Change indicator is technically the same as the Change in Value function or the Percent Change in Value function, depending on whether the As Percent parameter is selected. In either case, the function returns the amount by which the data has changed over the given period. The Percent Rate of Change value is traditionally multiplied by 100 for easier graphing.

The Rate of Change indicator at the beginning of a data series is not defined until there are enough values to fill the given period.

Senkou Span

Please see Ichimoku.

Slow Stochastic

The Slow Stochastic indicator calculates the location of a current price in relation to its range over a period of bars. The default settings are to use the most recent 14 bars (input Length), the high and low of that period to establish a range (input HighValue and LowValue) and the close as the current price (input CloseValue).

This calculation is then indexed, smoothed and plotted as SlowK. A smoothed average of SlowK, known as SlowD, is also plotted. SlowK and SlowD plot as oscillators with values from 0 to 100. The direction of the Stochastics should confirm price movement. For example, rising Stochastics confirm rising prices.

Stochastics can also help identify turning points when there are non-confirmations or divergences. For example, a new high in price without a new high in Stochastics may indicate a false breakout. Stochastics are also used to identify overbought and oversold conditions when the Stochastics reach extreme highs or lows. Additionally, SlowK crossing above the smoother SlowD can be a buy signal and vice versa.

Standard Deviation

Stochastics can also help identify turning points when there are non-confirmations or divergences. For example, a new high in price without a new high in Stochastics may indicate a false breakout. Stochastics are also used to identify overbought and oversold conditions when the Stochastics reach extreme highs or lows. Additionally, SlowK crossing above the smoother SlowD can be a buy signal and vice versa.

Standard Error Bands

The Standard Error Bands indicator is an attempt to show the trend and the volatility around the trend. Three plots are produced by this indicator. The middle plot is the ending value of a 21-period linear regression line. The upper plot, the upper standard error band, is the result of adding two standard errors to the ending value of the regression line. The lower plot, the lower standard error band, is a result of subtracting two standard errors from the end value of the linear regression line. Since large changes in the closing price can greatly affect the values of the line and error bands, a three period (bar) simple moving average of the ending value of the regression line and the standard errors are plotted.

Although the Standard Error Bands are similar to Bollinger bands they are interpreted differently. Standard Error Bands show the direction of the current trend and the volatility around it. Bollinger bands show the volatility around the average of the plotted price.

One method of using the Standard Error Bands is to look for the bands to tighten as price starts to move (upward or downward). When this occurs it is said that price tends to trend easily. The bands will often remain tight as long as the trend is strong. At the same time, the Linear Regression line will likely keep rising or falling depending on the direction of the trend. Once the Bands start to widen, it is indicative of the price slowing down. This may be followed by the Linear Regression line leveling off and possibly reversing, a signal that the trend may be nearing its end.

STARC Bands

Stoller Average Range Channels ("STARC") Bands create a channel surrounding a simple moving average. The width of the created channel varies with a period of the average range. The width of the created channel varies with a period of the average range; thus the name ("ST" for Stoller, plus "ARC" for Average Range Channel). STARC Bands, in a fashion similar to Bollinger Bands, will tighten in steady markets and loosen in volatile markets. However, rather than being based on closes, the STARC Bands are based on the average true range, thus giving a more in-depth picture of forex market volatility. While the penetration of a Bollinger Band may indicate a continuation of a price move, the STARC Bands define upper and lower limits for normal price action.

Swing Index

The Swing Index indicator assigns a Swing Index value from 0 to 100 for an up bar and 0 to -100 for a down bar. This indicator uses the current bar's Open, High, Low, and Close as well as the previous bar's Open and Close to calculate the Swing Index values. If the Swing Index crosses over 0, a short-term price increase is likely. Conversely, a cross below 0 suggests a decline in forex market price. A larger or smaller swing index value indicates the severity of the forex market's increase or decline in price.

TEMA

The Triple Exponential Moving Average ("TEMA") is a bit misleading in that it is not simply a moving average of a moving average of a moving average. It is a unique composite of a single exponential moving average, a double exponential moving average, and a triple exponential moving average that provides less lag than any of the three components individually. TEMA can be used in place of traditional moving averages and can be used to smooth price data or other indicators.

Tenkan Sen

Please see Ichimoku.

Time Series Forecast

The Time Series Forecast ("TSF") indicator is based on linear regression calculations using the Least Squares method. Linear regression is a statistical tool used to predict future forex market values relative to past values. TSF attempts to 'predict' the future value of a forex market by determining the upward or downward bias of a trend and extending that calculation into the future. For example, if prices are trending up, TSF attempts to logically determine the upward bias of the price relative to the current price and extend that calculation forward. When the forex market price is above the indicator, the trend is considered up. When the forex market price is below the indicator, the trend is considered down. Additionally, many analysts believe when prices rise above or fall below the indicator line; prices will likely pull back to the line. The TSF indicator also monitors the current trend to determine if a change in direction occurred.

The Time Series Forecast indicator is similar to the Linear Regression indicator with the exception of two significant differences. The first difference is that TSF plots its line forward (to the right of the chart) by the number of bars specified by the BarsPlus input. The second difference is the default Length input value used for the TSF is much shorter because the plot line is extended forward. A larger Length input would create a grossly exaggerated plot and would not be as reliable as a shorter-term length when analysing trends and price activity.

TRIX

The TRIX indicator is an oscillator used to identify oversold and overbought forex markets and it can also be used as a momentum indicator. As is common with many oscillators, TRIX oscillates around a zero line. When used as an oscillator, a positive value indicates an overbought forex market while a negative value indicates an oversold forex market. As a momentum indicator, a positive value suggests momentum is increasing while a negative value suggests momentum is decreasing. Many analysts believe the TRIX crossing above the zero line is a buy signal while closing below the zero line is a sell signal. Also, divergences between price and TRIX can indicate significant turning points in the forex market.

TRIX calculates a triple exponential moving average of the log of the Price input over the period of time specified by the Length input for the current bar. The current bar's value is subtracted by the previous bar's value. This prevents cycles shorter than the period defined by Length input from being considered by the indicator.

Two main advantages of TRIX compared to other trend-following indicators are its excellent filtration of forex market noise as well as its tendency to be a leading rather than a lagging indicator. It filters out forex market noise using the triple exponential average calculation thus eliminating minor short term cycles that may otherwise signal a change in forex market direction. Its ability to lead a forex market stems from its measurement of the difference between each bar's smoothed versions of the price information. When interpreted as a leading indicator, TRIX is best used in conjunction with another forex market timing indicator to minimise the effect of false indications.

Typical Price

The Typical Price for each bar is calculated as an average of 3 values: high, low and close. This value is then plotted on the chart. An average of the Typical Price from the most recent number of bars specified by the input Length is also plotted. Using the Typical Price instead of the close in calculating and plotting, say, a moving average weighs the high and low into the calculation.

Ultimate Oscillator

The Ultimate Oscillator indicator calculates the sums of the True Ranges of the number of bars specified by the inputs Avg1Len, Avg2Len and Avg3Len. These sums are divided into the sums of the distance from the close to the low. This value is weighted for the three lengths and plotted on the chart.

Many analysts believe divergences between the Ultimate Oscillator as well as a breakout in the trend of the indicator are significant signals. For example, a bullish divergence is said to occur if forex market prices reach a new low but the indicator does not follow. Conversely, a bearish divergence is said to occur if forex market prices reach a new high but the indicator does not follow.

Volatility Chaikin's

The Volatility Chaikin's indicator measures the difference between high and low prices. This formula is used to indicate the top or bottom of the forex market.

There are two ways to interpret this measure of volatility. One method assumes that forex market tops are generally accompanied by increased volatility and that the latter stages of a forex market bottom are generally accompanied by decreased volatility.

Another method assumes that an increase in the volatility indicator over a relatively short time period indicates that a bottom is near and that a decrease in volatility over a longer time period indicates an approaching top.

Weighted Close

The Weighted Close for each bar is calculated as an average of the high, low and close, with the close getting twice the weight of the high and low. This value is then plotted on the chart. An average of the Weighted Close from the most recent number of bars specified by the input Length is also plotted. Using the Weighted Close instead of the close in calculating and plotting, say, a moving average weighs the high and low into the calculation.

Williams Accumulation/Distribution

The Williams' Accumulation/ Distribution indicator is used to determine if the forex forex trading market is controlled by buyers (accumulation) or by sellers (distribution); and trading when there is divergence between price and the A/D indicator.

The Williams A/D indicator recommends buying when prices fall to a new low, yet the A/D indicator fails to reach a new low. Likewise, sell when the price makes a new high and the indicator fails to follow suit.

Zig Zag

The Zig Zag indicator shows past performance trends and only the most significant changes. It does this by filtering out any changes less than a specified amount.

The Zig Zag indicator is used primarily to help you see changes by highlighting the most significant reversals. Understand that the last segment in a Zig Zag chart can change based on changes in the underlying plot, price being only one example. That is, a change in a currency's price can change a previous value of the indicator. Since the Zig Zag indicator adjusts its values based on subsequent changes, it has perfect hindsight into what prices have done.

Top

Next: Chart Studio®

Request More Information

CD01S.058.111008