Professional use of technical analysis has spurred the development of various effective charting techniques including the Schaff Trend Cycle (STC). The STC as it is commonly referred to is a amalgamation of two popular indicators – Stochastics and MACD. Looking at the basic range of a price movement, Stochastics focus on identifying expensive or cheap points within a trend. It can be effective during range bound periods. The Moving Average Convergence Divergence (MACD) is an indicator that focuses on defining the trend between two MAs over a specified time period. The first step in calculating the MACDs is by subtracting the longer term MA from the short period. This is then overlayed on a chart with a signal line, which can have a specific time frame based on the traders’ style of trading. Effective in its application, the MACD has long been used as a basic indicator for trend definition. [Read more...]
Technical Analysis Series: Parabolic SAR
The Parabolic Stop and Reverse (SAR) indicator focuses on identifying the change in momentum of a price based on the technical strength and time effectiveness of the trend. Discovered by Wilder Jr, the Parabolic SAR provides the trader with a decisive directional movement parameter. It is however corrupted by short term changes in price and can lead to a sporadic shift. Commonly highlighted as a longer term indicator, many experts focus on complimenting the Parabolic SAR with short entry and exit parameters. [Read more...]
Technical Analysis Series: The Zig Zag Indicator vs Momentum
The ZigZag indicator focuses on identifying momentum points within a designated data series and trend. Momentum as an indicator adopts the same philosophy; however the noise and degree of lag differ accordingly. Both technical tools have increasingly become key in determination of entry and exit points in a forex trading strategy. Although each indicator has its drawbacks, both can be utilised in co-operation with other trend following or identification techniques. Some of the common indicators that are used simultaneously with Zig Zag and Momentum are RSI, CCI and Stochastics. The Oscillating technicals provide stable long and short pricing points within a charting time period. [Read more...]
Technical Analysis: Fractal Theory
The utilisation of Fractal theory in trading is increasingly becoming an attractive option for many traders. Identified as trend following, fractals focus on calculating changes in movements and identifying turning points. The concept has been widely used as a secondary measure for confirmation purposes.
Fractal theory gained particular attention in 1975 when French mathematician Mandelbrot focused on identifying a recursive nature in both mathematics and geometry. Based on historical theory, he was able to illustrate a fractal break in data using a graphical depiction. Modern day mathematicians and quantitative analysts then adapted the idea of fractals to the markets and pricing behaviour. To truly understand how fractals are used in technical analysis we have outlined its usage in an example below. [Read more...]
Technical Analysis : Ichimoku Kinko Hyu
The Ichimoku Kinko Hyu (IKH) technical indicator focuses on identifying momentum, support and resistance levels. Relatively unique, but complex in its makeup the charting technique was developed in Japan by newspaper reporter Goichi Hosada. Growing in popularity during the late 60s and early 70s, the “icho” indicator is predictive or forward looking in nature, focusing on high probability trend confirmation using moving averages. [Read more...]
Technical Analysis : On Balance Volume vs Volume
The idea of using volume as a complimentary indicator has grown in popularity due to the sophistication of the markets. Traders are now identifying trends and patterns based on momentum changes and volume directions, rather than basic average pricing. There are a number of key indicators that can define these patterns, however On Balance Volume and Volume are extremely comprehensive and effective. It is important not to confuse both indicators. The two examples below highlight the defining features: [Read more...]
