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...]
Trading The Bollinger Band Squeeze
The Bollinger Band squeeze is a relatively new forex trading strategy that focuses on defining breakout patterns during low volatility situations. A commonly used technical indicator, Bollinger Bands were first developed by John Bollinger, as a volatility and directional calculator. By specifying the degree of angle or momentum on an uptrend or downtrend, the user can focus on specific entry or exit points. Bollinger Bands in their traditional definition, utilise the standard deviation of price points over a given range. Through the specification of both high and low points on a given direction, the trader can then ascertain as to the volatility, or percentage probability of a pricing change / movement.
What Are The Technical Ratios In Trading?
Alpha, Beta , Standard Deviation, Sharpe Ratio and R-Squared are five distinctive technical risk ratios used by professional traders to determine the effective level of risk adjusted return in a portfolio. Their application has become increasingly important over the last few years due to the volatility in the markets and the shift towards tighter risk management controls. To truly calculate the specific return of a portfolio, it is key to define the market movements, and how much risk is attributed to performance. Each technical ratio can be used to effectively analyse the specific segments and holdings within a portfolio. [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...]
Free Floating vs Pegged Currency
Currencies can be defined by their effective market or trading conditions. Governed by macro economic factors, foreign exchange or currency can either take the form of floating or fixed (pegged). Economists have identified that each has distinctive characteristics, both positive and negative. It is important to understand the motive behind a country deciding on whether or not to float its currency or peg against another country or commodity. [Read more...]
Correlation and Co-Integration: What Are The Differences?
Correlation and Co integration are two terms which define the movements of pricing over a specific time period or scale. Incorrectly defined in many cases due to their complexity, mathematicians have long used both in defining the degree of regression or relationship between variables and data sets. [Read more...]
