Friday, 29 May 2020


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Technical Analysis: Technical Indicators - Part 3

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They are mathematical or statistical formulas. They are more objective than the charting so far seen and are the basis of automatic trading systems, generating specific signals of purchase and sale. We could distinguish two kinds:  

1. Oscillators: They go forward to the movements of prices: RSI, stochastic and momentum

2. Trend followers: are delayed to the prices. Moving averages

Moving Averages There are two main kinds of moving averages, the simple average and the weighted or exponential that it is the most complicated. The signal to buy gives it when the price cutting to the average upward, being able to use 2 moving averages at once. Regarding its use, we use moving averages short in moves side (5 and 10 periods) and longer-term moving trend (70 and 200 periods). The moving average may function as support or resistance. Simple moving averages are stockings on a set of values (prices, volumes, ...) which have the particularity that its calculation is made on a specific number of data (n days) that mark the period. As new data is incorporated, disappears the first to always keep this period of calculation. Moving averages are constructed with various data. The calculation is done primarily with closing prices. For the calculation of the weighted average is multiplied by the last closing value of the period, the previous day's closing period is multiplied by -1 and so on with all closures of the period. Then add up all the results of these multiplications and divided by the sum of all the multipliers The exponential moving average, weigh the data that make up the simple moving average taking into account all available data on the value in the calculation. To calculate this, we only need to know the weight factor, the closing day and the average value of the previous day to calculate its value. 

Moving Average Convergence Divergence – MACD We refer to a compound consisting of two lines: MACD and SIGNAL The MACD is the difference between two moving averages (12 and 26 periods). The SIGNAL is averaged over the previous subtraction. This measure works best with the weekly data and in movements with trend. Their employment is as follows:

  • The MACD cutting the SIGNAL upwards => Buy
  • See potentials divergence
  • Employment of Chartism



RSI The RSI is an oscillator based on price changes on a period of time. Their representation is linear and is plotted with a vertical scale of 0-100 (standard), with two boundary lines (an upper and lower) are set by technical analysts, marking the overbought and oversold areas of the value.

Bollinger bands It is a moving average with a top band (average + 2 deviations) and a lower band (average + 2 deviations). It works best on movements of price without trend. Its usefulness is measuring the existing market volatility.

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