Table of Contents
Disclaimer:
The following information is mostly from vast sources not belonging to FORACKS, but summarized by a mentor (Khumo Morongwe Monamudi Morare) from FORACKS.
The summary found in this document is for the intended use of FORACKS learners and cannot be distributed to anyone besides the learners of FORACKS, by the mentors and author thereof, without the written consent of the author and FORACKS.
The intent of this document is to supply the learners of FORACKS
This summary has information/quotes/premises that are from the following
References:
www.investopedia.com
(some information may be from other sources, although not mentioned in the above list of references.)
INDICATORS
- A device providing specific information the state or condition of something.
- A thing that indicates the state or level of something.
Average Directional Movement Index
(ADX) is an indicator used in technical analysis as an objective value for the strength of a trend. ADX is non-directional, so it quantifies a trend’s strength regardless of whether it is up or down.
When technicians look for patterns over time to confirm a continuation or trend reversal, they often use the average directional index as an indicator.
Once the trend is identified, the challenge is determining the best time to enter and exit a trade. The ADX is used to measure the strength or weakness of a trend and is therefore used alongside the plus directional movement (+DM) and minus direction movement (-DM) to determine the best course of action.
Strategies: A strong trend is occurring when the ADX is 25 and above; likewise, there is no trend when the ADX falls below 20.When the +DI line is greater than the –DI line, the bulls have the directional edge. However, when the –DI line is above the +DI line, the bears have the directional edge. As with all technical trends, traders use several indicators to confirm a movement.
One option is to sell when the _DI is up and the major trend is down. Another option is to buy when the +DI is higher than the –DI, but only when the larger trend is moving up.
It is possible to use the ADX as a way to time an entry on a market that is already confirmed to be trading in a particular direction.
Directional Movement Index – DMI
Helps traders avoid false signals. By comparing various moving averages,the indicator helps determine if prices are trending or simply producing noise.
Envelopes
A type of technical indicator typically formed by two moving averages that define upper and lower price range levels.
Used by investors and traders to help identify extreme overbought and oversold conditions in a market.
Typically appears overlaid on a price chart, is also useful in identifying trading ranges for a particular trading investment.
A moving average envelope calculates two moving averages using the highprices and low price inputs. Both averages are calculated using price data from the same number of bars, as determined by the input length. The average of the high price is increased by a user-specified percent and then plotted; the average of the low price is reduced by a user-specified percentage and then plotted.
Can be customized to suit each investor’s style and preferences.
While traders may interpret and apply the information in unique ways, many traders use an envelope so that a sell signal occurs when price reaches the upper band, signifying an overbought market, and a buy signal occurs when price drops to the lower band, representing an oversold market.
Since a trading instrument’s price tends to stay within the range represented by an envelope, the theory is that prices will continue to bounce between the upper and lower thresholds.
Ichomuko Kinko Hyo
A technical indicator that is used to gauge momentum along with future areas of support and resistance.
The all-in-one technical indicator is composed of five lines called the tenkan-sen, kinjun-sen, senkou span A, senkou span b, and chickou span.
The Ichimoku Kinko Hyo indicator was originally developed by a Japanese newspaper writer to combine various technical strategies into a single indicator that could be easily implemented and interpreted. In Japanese, “ichimoku” translates to “one look”,meaning traders only have to take one look at the chart to determine momentum, support and resistance.
Best used in conjunction with other forms of technical analysis.
There are five key components to the Ichimoku uindicator:
- Tenkan-sen: The tenkan-sen is calculated by adding the highest high and highest low over the past nine periods and then dividing the result by two. The resulting line represents a key support and resistance level, as well as a signal line for reversals.
- Kijun-sen: The kijun-sen is calculated by adding the highest high and the lowest low over the past 26 periods and dividing the result by two. The resulting line represents a key support and resistance level, a confirmation of a trend change, and can be used as a trailing stop loss point.
- Senkou Span A: The senkou Span A is calculated by adding thetenkan-sen and the kijun-sen, dividing the result by two, and then plotting the result 26 periods ahead. The resulting line forms one edge of the kumo – or cloud – that’s used to identify future areas of support and resistance.
- Senkou Span B: The Senkou Span B is calculated by adding the highest high and the lowest low over the past 52 periods, dividing it by two and then plotting the result 26 periods ahead. Theresulting line forms the other edge of the kumo that’s used to identify future areas of support and resistance.
- Chickou Span: The Chickou Span is the current period’s closing price plotted 26 days back on the chart. This line is used to show possible areas of support and resistance.
The Ichimoku Kumo; if the chart is above it, it’s an uptrend, and it acts as a support, vice versa for when the chart is below the cloud.
Moving Average
Used by investors and traders to track and identify trends by smoothing normal day-to-day price fluctuations.
Can be used to determine support and resistance levels.
Standard Deviation
A measure of dispersion of a set of data from the mean. It is calculated as the square root of variance by determining the variation between each data point relative to the mean. If the data points are further from the mean, there is higher deviation within the data set.
In finance, standard deviation is a statistical measurement; when applied to the annual rate of return of an investment, it sheds light on the historical volatility of that investment. The greater the standard deviation of a security, the greater the variance between each price and the mean,indicating a larger price range.
A large dispersion indicates how much the return on the fund is deviating from the expected normal returns.
Standard Deviation is calculated based on the mean. The distance of each data point from the mean is squared, summed and averaged to find the variance. Or to put it another way: Variance is derived by taking the mean of the data points, subtracting the mean from each data point individually, squaring each of these results and then taking another mean of these squares.
- Standard Deviation is simply the square root of the variance.
- Helps measure market and security volatility and to predict performance trends.
OSCILLATORS
- Indicators that are used when viewing charts that are non-trending.
Average True Range
A measure of volatility introduced by Welles Wilder in his book, “New Concepts in Technical Trading Systems.”
The true range indicator is the greatest of the following: current high less current low, the absolute value of the current low less the previous close. The average true range is a moving average, generally 14 days, of the true ranges.
A stock experiencing a high level of volatility has a higher ATR, and a low volatility stock has a lower ATR.
- May be used by market technicians to enter and exit trades.
Elder Ray Index
A technical indicator developed by Alexander Elder that measures the amount of buying and selling pressure in the market. This indicator consists of two separate indicators known as “bull power” and “bearpower”. These figures allow a trader to determine the position of the price.
Bull Power = Daily High –n- period EMAv
Bear Power = Daily High –n- period EMA
Technical traders will use the values of the bull and bear power alongwith divergence to make transaction decisions.
- Long positions are taken when the bear power has a value belowzero but is increasing and the bull powers latest peak is higherthan it was previously.
- A short position is taken when the bull power value is positive but falling and the bear power’s recent low is lower than any other previous bottom.
Commodity Channel Index (CCI)
A momentum based technical trading tool used most often to help determine when an investment vehicle is reaching a condition of being overbought or oversold. As the price of an investment moves continually in one direction, these indicators help traders to determine when institutional conviction may be changing, and a pause or pullback in the market price may be coming. This information can permit traders to take profit or add to an existing position following a price pull-back.
Is a stochastic oscillator that measures the change in an instrument’s price relative to a predefined moving average (MA) of the price divided by 1.5% of a normal deviation from that average.
- Oscillating indicators in general are technical trading tools whose calculated values move back and forth between two predetermined levels, the top level indicating a market that is in the condition of being overbought and the bottom one indicating a market that is in the condition of being oversold.
The CCI is a trading tool that provides investors with reasonable evidence to estimate pending changes in the direction of asset prices.
Use the indicator to determine cyclical trends, and also to identify potential peaks and valleys in the asset’s price.
Demarker
An indicator used in technical analysis that compares the most recent price action to the previous period’s price in an attempt to measure the demand of the underlying asset. This indicator is generally used to identify market tops and bottoms. This oscillator is bounded between -100 and +100 and unlike many other oscillators, it does not use smoothed data.
Technical Traders primarily use this indicator as a method of identifying the riskiness of the levels in which they wish to place a transaction.
- Generally, values above 60 are indicative of lower volatility and risk, while a reading below 40 is a sign that risk is increasing.
- Values exceeding outside either boundary (100 and +100) are deemed risky, while values within are considered low risk.
Force Index
An oscillator that fluctuates above and below zero. It combines price movement and volume to assess the force behind price movement and spot potential trend changes.
- The 13-period (recommended period) Force Index confirms short-term uptrends when above zero, and confirms short term downtrends when below zero. When the Force Index Diverges with price, it indicates a trend change may be coming.
False signals are common with the 13-period Fore Index. Increase the period to reduce the number of false signals.
When the Force Index is moving lower, it warns the price downtrend is losing power and could soon reverse. When the Force Index is moving lower as the price is moving higher, it warns the price uptrend is losing power and could soon reverse. Divergence is not a timing signal though, as the indicator and price can diverge for extended periods of time before an actual price reversal occurs.
The Force Index is commonly used with other trending indicators,such as Moving Averages to filter trade signals.
MACD – Moving Average Convergence Divergence
A trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD,called the “signal line”, is then plotted on top of the MACD,functioning as a trigger for buy and sell signals.
- Crossovers: When the MACD falls below the signal line, it is a bearish signal, which indicates that it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward movement. Many traders wait for a confirmed crossover above the signal line before entering into a position to avoid getting “faked out” or entering into a position too early, as shown by the first arrow.
- Divergence: When the security price diverges from the MACD, it signals the end of the current trend. For example,a stock price that is rising and MACD indicator that is falling could mean that a bullish reversal could occur in the near-term. Traders often use divergence in conjunction with other technical indicators to find opportunities.
- Dramatic Rise: When the MACD rises dramatically- that is,the shorter moving average pulls away from the longer term moving average – it is a signal that the security is overbought and will soon return to normal levels. Traders will often combine this analysis with the Relative Strength Index (RSI) or other technical indicators to verify overbought or oversold conditions.
Traders also watch for a move above or below the zero line because this signals the position of the short-term average is above the long-term average, which signals upward momentum. The opposite is true when the MACD is below zero.
- The Zero line often acts as an area of support and resistance for the indicator.
Momentum
The rate of acceleration of a security’s price or volume. Momentum is considered an oscillator and is used to help identify trend lines
In the world of investments, momentum refers to the rate of change on price movements for a particular asset – that is the speed at which the price is changing.
Once a momentum trader sees acceleration in a stock’s price,earnings or revenues, the trader will often take a long or short position in the stock in the hope that its momentum will continue in either an upward or downward direction. This strategy relies on short-term movements in a stock’s price rather than fundamental value.
- If a trader wants to use a momentum-based strategy, she takes a long position in a stock or asset that has been trading up. If the stock is trending down, he takes a short position.
Instead of the traditional philosophy of trading – sell high, buylow- momentum investing seeks to sell low and buy lower, or buy high and sell higher. Instead of identifying the continuation or reversal pattern, momentum investors focus on the trend created by the most recent price break.
Think of it like the momentum of a train. When a train starts, it is accelerating, but it is moving slowly. In the middle pf the trip, it stops accelerating, but it’s traveling at a higher velocity. At the end of the trip, the train is decelerating as it begins to move slower. For the momentum investor, the best part of the train is in the middle,when the train is moving at its highest velocity.
- Stocks trending up are referred to as hot stocks. A stock that is trending down is cold.
Commonly used in reference to historical asset prices as a technical indicator.
Oscillator of Moving Average (OsMA)
An indicator that shows the momentum of price action.
It is calculated by taking the difference between a shorter-term moving average and a longer-term moving average.
The two most common are the 12 period moving average and the26 period moving averages. Because of this, it is best described as a modification of the MACD Indicator.
Essentially indicates when a security is overbought or oversold, or when a new trend is forming.
- When the oscillator approaches the upper extremes of the indicator, it shows that the asset could be overbought. When it approaches the lower extremes, it indicates that the asset could be oversold.
- Usually when the indicator turns form positive to negative, it shows that a downtrend could be starting to form. When the indicator turns form negative to positive, it is indicating that that an uptrend could be starting to form.
Relative Vigor Index – RVI
An indicator used in technical analysis that measures the conviction of a recent price action and the likelihood that it will continue. The RVI compares the positioning of a security’s closing price relative to its price range, and the result is smoothed by calculating an exponential moving average of the values.
- The indicator is calculated by using the following formula: RVI = Close – Open/High – Low
- The RVI Indicator is calculated in a similar fashion to the stochastic oscillator, but the vigor index compares the close relative to the open rather than to the low. Traders expect the RVI value to grow as the bullish trend gains momentum because in this type of environment, a security’s closing price tends to be at the top of the range while the open is near the low if the day.
Stochastic Oscillator
A momentum indicator comparing the closing price of a security to the range closing price of a security to the range of its prices over a certain period of time. The sensitivity of the oscillator to market movements is reducible by adjusting that time period or by taking a moving average of the result.
The general theory serving as the foundation for this indicator is that in a market trending upward, prices will close near the high,and in a market trending downward, prices close near the low.
The stochastic oscillator presents the location of the closing price of a stock in relation to the high and low range of the price of a stock over a period of time, typically a 14-day period.
Follows the speed or momentum of price.
The momentum or speed of the price of a stock changes before the price(s) changes itself.
The stochastic oscillator can be used to foreshadow reversals when the indicator reveals bullish or bearish divergences.
- Considering the most traditional settings for the oscillator (it being bound between range from 0 to 100), 20 is typically considered the oversold threshold and 80 is considered the overbought threshold. However, the levels are adjustable to fit security characteristics and analytical needs.
Readings above 80 indicate a security is trading near the top of its high-low range; readings below 20 indicate the security is trading near the bottom of its high-low range.
Williams’ Percent Range
aka (%R) is a dynamic technical indicator, which determines whether the market is overbought/oversold. Williams’ %R is very similar to the Stochastic Oscillator. The only difference is that %R has an upside down scale and the Stochastic Oscillator has internal smoothing.
- Indicator values ranging between -80% and -100% indicate that the market is oversold. Indicator values ranging between -0% and -20% indicate that the market is overbought.
To show the indicator in this upside down fashion, one places a minus symbol before the Williams’ Percent Range values (for example 30%). One should ignore the minus symbol when conducting the analysis.
It is best to wait for the symbol price to change direction before placing your trades.
For example, if an overbought/oversold indicator is showing an overbought condition, it is wise to wait for the security’s price to turn down before selling the security.
- An interesting phenomenon of the Williams’ Percent Range indicator is its uncanny ability to anticipate a reversal in the underlying security’s price. The indicator almost always forms a peak and turns down a few days before the security’s price peaks and turns down. Likewise, Williams’ Percent Range usually creates a trough and turns up a few days before the security’s price turns up.
VOLUMES
The amount of space that a substance or object occupies
The number or amount of something in general
Accumulation/ Distribution
A momentum indicator that attempts to gauge supply and demand by determining whether investors are generally “accumulating”, or buying, or “distributing”, or “selling”, a certain stock by identifying divergences between stock price and volume flow. The accumulation/distribution is calculated by first calculating the money flow multiplier by the periods volume.
The Accumulation/Distribution line may be used as an indicator to confirm whether a security is trending. Is a security is in a string downtrend or uptrend, the accumulation/distribution likely follows the direction of the price movements, and therefore, confirms the down trendor uptrend. If the accumulation/distribution line and a security’s price are diverging, it may be bullish or bearish signal.
- If a security’s price is in a downtrend while the accumulation/distribution line is in an uptrend, the indicator, shows there may be buying pressure and the security’s price may reverse. Consequently, the security may reverse and trend up.Conversely, if a security’s price is in an uptrend while the accumulation/distribution line is in a downtrend, the indicator shows there may be selling pressure, or high distribution. This may cause the security’s price to reverse and turn into a downtrend.
In practice, this indicator is used to find situations in which the indicator is heading in the opposite direction as the price. Once this divergence is identified, the trader waits to confirm the reversal and makes her transaction decisions using other technical indicators. Although, the accumulation/distribution line helps to determine a security’s trend, the indicator does not take into account price gaps that may occur.
Money Flow Index
A momentum indicator that measures the inflow and outflow of money into a security over a specific period of time. The MFI uses a security’s price and volume to measure trading pressure.Because the MFI adds trading volume to the relative strength index (RSI), it’s sometimes referred to as volume-weighted RSI.
The value of the MFI is always between 0 and 100.
- Many traders watch for opportunities that arise when theMFI moves in the opposite direction as the price. This divergence can often be a leading indicator of a change in the current trend.
- An MFI of over 80 suggests the security is overbought, while a value lower than 20 suggests the security is oversold.
On-Balance Volume (OBV)
A momentum indicator that uses volume flow to predict changes in stock price. Joseph Granville developed the OBV metric in the 1960s. He believed that, when the volume increases sharply without a significant change in the stock price, the price will eventually jump upwards, and vice versa.
The theory behind OBV is based on the distinction between smart money – namely, institutional investors- and less sophisticated retail investors. As mutual funds and retail investors are selling, volume may increase even as the price remains relatively level. Eventually, larger investors begin to sell, and smaller investors begin buying.
Simple interpretation and method of use:
- If the price trend is up, and OBV is now dropping (bearish divergence), take a short position (sell) when the price breaks below its current trend line. Place a stop loss above the most recent swing higher in price. Hold the trade for as long as OBV confirms it, and the price is trading lower. Exit if the price breaks above its trend line.
- If the price trend is down, and OBV is now rising (bullish divergence), take a long position (buy) when the price breaks above its current trend line. Place a stop loss below the most recent swing lower in price. Hold trade for as long as OBV confirms it. Exit if the price breaks below its trend line.
Volume
An important indicator in technical analysis as it is used to measure the relative worth of a market move. If the markets make a strong price movement, then the strength of that movement depends on the volume for that period.
- The higher the volume during the price move, the more significant the move.
Volume levels provide clues about where the best entry and exit points are located.
Analysts use bar charts to quickly determine the level of volume. Bars also provide easier identification of trends in volume. When bars are higher than average, it is a sign of high volume or strength at a particular market price. In this way, analysts use volume as a way as to confirm a price movement. If volume increases when the price moves up or down, it is considered a price movement with strength.
If traders want to confirm a reversal on a level of support, or floor, they look for high buying volume. Conversely, if traders are looking to confirm a break in the level of support, they look for low volume from buyers.
If traders want to confirm a reversal on a level of resistance,or ceiling, they look for high selling volume. Conversely, if traders are looking to confirm a break in the level of support, they look for high buying volume.
BILL WILLIAMS
Ben Williams is an American trader and author of books on trading psychology, technical analysis and chaos theory in trading stock,commodity, and foreign exchange (Forex) markets. His study of stock market data led him to develop a number of technical analyses that identify trends in the financial market.
Accelerator Oscillator
- Price is the latest element to change. Prior to price changes, the market driving force changes its direction, the driving force acceleration must slow down and reach nought. After that it starts acceleration in the opposite direction until the price starts changing direction.
Measures acceleration and deceleration of the current driving force. This indicator will change direction before any changes in the driving force,which, in its turn, will change its direction before the price. If you realize that Acceleration/Deceleration is a signal of an earlier warning, it gives you evident advantage.
The nought line is basically the spot where the driving force is at balance with the acceleration. If Acceleration/Deceleration is higher than nought,then it is usually easier for the acceleration to continue the upward movement (and vice versa in cases when it is below nought). It is not regarded as a signal when the nought line is crossed.
The only thing that needs to be done to control the market and make decisions is to watch for changes in colour.
- To save yourself serious reflections, you must remember: you cannot buy with the help of Acceleration/Deceleration, when the current column is colored red, and you cannot sell, when the current column is coloured green.
If you enter the market in the direction of the driving force (the indicator is higher than nought, when buying, or it is lower than nought, whenselling), then you need only two green columns to buy (two red columns to sell). If the driving force is directed against the position to be opened(indicator below nought for buying, or higher than nought for selling), a confirmation is needed, hence, an additional column is required. In this case the indicator is to show three red columns over the nought line for a short position and three green columns below the nought line for a long position.
Alligator
The alligator indicator uses three soothed moving averages, set at five,and 13 periods, which are all Fibonacci numbers. The initial smoothed average is calculated with a simple moving average (SMA), adding additional smoothed averages that slow down indicator turns.
Three mobbing averages comprise the Jaw, Teeth and Lips of the Alligator, opening and closing in reaction to evolving trends and trading ranges:
- Jaw (Blue line) – starts with the 13-bar SSMA (smoothed moving average) and is smoothed by eight bars on subsequent values.
- Teeth (Red Line) – starts with the eight-bar SMMA and is smoothed by five bars on subsequent values.
- Lips (Green Line) – starts with the five-bar SMMA and smoothed by three bars on subsequent values.
The indicator applies convergence-divergence relationships to build trading signals, with the Jaw making the slowest turns and the Lips making the fastest turns. The Lips crossing downwards through the otherlines signals a short sale opportunity while crossing upward signals a buying opportunity. Williams refers to the downward cross as the alligator “sleeping” and the upward cross as the alligator “awakening”.
The three lines stretched apart and moving higher or lower denote trending periods in which long or short positions should be maintained and managed. This is referred to as the alligator “eating with mouth wide open”.
Indicator lines converging into narrow bands and shifting toward a horizontal direction denote periods in which the trend may be coming to an end, signaling the need for profit taking and position realignment.This indicates the alligator is “sated”.
The indicator will flash false positives when the three lines are crisscrossing each other repeatedly, due to choppy market conditions.According to Williams, the alligator is “sleeping” at this time, telling market players to remain on the sidelines until it wakes up once again.This exposes significant drawback because many awakening signals within evolving ranges will fail, triggering whipsaws and shakeouts.
Provides a useful tool for trend recognition and trade entry timing, but it has limited usefulness during choppy and trendless periods. Market players should confirm buy or sell signals with a MACD or another trend identification indicator.
Awesome Oscillators
An indicator used to measure market momentum. AO calculates difference between a 34 period and 5 period Simple Moving Average.The Simple Moving Averages that are used are not calculated using closing price but rather each bar’s midpoint. AO is generally used to affirm trends or to anticipate possible reversals.
Because of its nature as an oscillator, the Awesome Oscillator is designedt o have values that fluctuate above and below a Zero Line. The generated values are plotted as a histogram of red and green bars. A bar is green when its value is higher than the previous bar. A red bar indicates that abar is lower than the previous bar. When AO’s values are above the ZeroLine, this indicates that the short term period is trending higher than the long term period. When AO’s values are below the Zero Line, the short term period is trending lower than the Longer Term Period.
Zero Line Cross: the most straightforward, basic signal generated by the Awesome Indicator is the Zero Line Cross. This is simply when the AOvalue crosses above or below the Zero Line. This indicates a change in momentum.
- When AO crosses above the Zero Line, short-term momentum is now rising faster than the long term momentum. This can present a bullish buying opportunity.
- When AO crosses below the Zero Line, short term momentum is now falling faster than the long term momentum. This can present a bearish selling opportunity.
Twin Peaks: a method which considers the differences between two peaks on the same side of the Zero Line.
- A bullish Twin Peak setup occurs when there are two peaks below the Zero Line. The second peak is higher than the first peak and followed by a green bar. Also very importantly, the trough between the two peaks, must remain below the zero entire time.
- A bearish Twin Peak setup occurs when there are two peaks above the zero line. The second peak is lower that the first peak and followed by a red bar. The trough between both peaks, must remain above the zero line for the duration of the setup.
Saucer: A Saucer AO setup looks for more rapid changes in momentum.The Saucer method looks for changes in three consecutive bars, all on the same side of the Zero Line.
- A bullish Saucer setup occurs when the AO is above the Zero Line. It entails two consecutive red bars (with the second bar being lower than the first bar) being followed by a Green Bar.
- A bearish Saucer setup occurs when the AO is below the Zero Line. It entails two consecutive green bars(with the second bar being higher than the first bar) being followed by a red bar.
Fractals
Recurring patterns that can predict reversals among larger, more chaotic price movements. These basic fractals are composed of five or more bars.The rules for identifying fractals are as follows:
- A bearish turning point occurs when there is a pattern with the highest high in the middle and two lower highs on each side.
- A bullish turning point occurs when there is a pattern with the lowest low in the middle and two higher lows on each side.
Fractals are lagging indicators – that is, a fractal cannot be drawn until we are two days into the reversal.
- Best used in conjunction with the Alligator Indicator. The standard rule states that all buy rules are only valid if below the “alligator’s teeth” (the center average), and all sell rules are only valid if the above the alligator’s teeth.
Here is a basic setup that is used when using a chart with a four-hour timeframe:
- Initiate a position when the price has hit the farthest Fibonacci band, but only after a daily (D1) fractal takes place.
- Exit a position after a daily (D1) fractal reversal takes place.
Fractals pinpoint meaningful tops and bottoms. This helps take the guesswork out of deciding the Fibonacci level to trade – all we have to do is check to see if the daily fractal occurred.
The longer the time period (i.e. the number of bars required for a fractal),the more reliable the reversal. It’s also important to note that the longer the time period, the lower the number of signals generated.
Is is best to plot fractals in multiple timeframes. For example, only trade short-term fractals in the direction of the long-term ones. Along these same lines, long-term fractals are more reliable than short-term fractals.
Use in conjunction with other indicators.
Gator Oscillator
A supplement to the Alligator Oscillator and is used alongside with it showing the absolute degree of convergence/divergence of the Alligator’s three SMAs pointing at the Alligator’s periods of slumber and awakeness(i.e. trending and non-trending market phases)
Being an oscillator in the form of two histograms built on either side of the nought line, the Gator Oscillator plots the absolute difference between the Alligator’s Teeth and Jaw (blue and red line) in the positive area and the absolute difference between the Alligator’s Teeth and Lips(red and green lines) in the negative area. The Histogram’s bars are coloured green if exceeding the previous bar’s volume or red if falling short.
The bars of the extreme values are in tune with the strong trend forces.
The Alligator’s activity periods are divided into the following four:
- Gator awakes: the bars on different sides of the nought line are coloured differently.
- Gator eats: green bars on both sides of the nought line.
- Gator fills out: single red bar during the “eating” phase.
- Gator sleeps: the bars on both sides are red.
Marketing Facilitation Index
The indicator which evaluates the willingness of the market to move the price. The indicator’s absolute values alone cannot provide any trading signals unlike its dynamics in relation to the dynamics of the Volume.
The absolute values of the index are represented by the histogram’s bars while the comparison of the index and Volume dynamics are given in colours which are vital in terms of reading the indicator signs.
Green Bar: both MFI and Volume are up. Increasing trading activity means market movement acceleration. We may join the trend.
Blue Bar: MFI indicator is up, Volume is down. The movement is continuing although the volume has dropped. The trend will soon be reversing.
Pink Bar: MFI indicator is down, Volume is up. The slowing down movement while volume is raising, may indicate a possible break through,often a U-turn.
Brown Bar: both MFI and Volume are down. The market is no longer interested in the current direction and is looking for signs of a future development.
The Market Facilitation Index is calculated as the difference between the high and low bar prices divided by the Volume for that period.
MFI = (High –Low)/Volume
Simple interpretation and method of use:
- Failure swings at 80 or 20 can be used to anticipate trend reversals.
- Above 80 is considered overbought (which means sell), below 20 is considered oversold (which means buy).
- Above 90 is truly overbought and below 10 is truly oversold.
Rare and suggests price move is unsustainable.
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