## What is Directional Movement Index (DMI)?

The Directional Movement Index (DMI) combines the average directional index (ADX), plus directional indicator (+DI), and minus directional indicator (-DI) into one graph that depicts the strength of positive or negative market forces. By plotting the directional indicators together with the ADX line, traders can get a sense of overall movement and determine a trend’s strength and direction. The DMI is a useful illustration of a key point: the ADX is most useful when combined with other indicators to determine whether it makes sense to trade with a trend. The ADX normally depicts three lines in order to give traders an accurate depiction of both the strength and direction of trends: the&nbsp;Plus Directional Indicator (+DI)&nbsp;and&nbsp;Minus Directional Indicator (-DI), as well as the ADX lines. The DIs indicate&nbsp;trend direction, while the ADX depicts&nbsp;trend strength. Continue reading...

## What is divergence analysis?

The analysis of convergence and divergence between indexes and other data seeks to find leading indicators where there is confirmation or non-confirmation of trends. Dow Theory was one of the first examples of such thinking. Charles Dow would watch the movements of Industrials and the Rail and compare the uptrend or downtrend of each. Where trends do not line up (e.g., one is trending downward with lower troughs and the other has “higher lows”) there is “divergence”, and non-confirmation of what was thought to be a trend in one index. Continue reading...

## What are Fibonacci Numbers/Lines?

Fibonacci numbers are part of the&nbsp;Fibonacci sequence, where the two previous numbers are added together to calculate the next number in the sequence. The ratio of two Fibonacci numbers is the Golden Ratio, or 1.61803398875, which has been used since ancient times as the perfect proportion in architecture and other design. The Golden Ratio is also known as Phi (pronounced “fee”). Because Fibonacci numbers are found throughout the natural world, they have been integrated into some traders’ strategies for market analysis. Continue reading...

## What is quantitative analysis?

The attempt to represent events and phenomena mathematically and to thereby make reality more understandable is called quantitative analysis. To quantify something from the real world, an analyst will translate the factors and variables present in a real event into a coding system which will allow it to be represented in mathematical or computational symbology. The quantitative analysis that follows will attempt to create formulas and test them for external validity and replicability. Continue reading...

## What is an Uptrend?

An uptrend is a continuous upward movement in a stock's price. An uptrend is an upward movement over a few increments of time (whatever time increment being used), where the successive numbers being compared continue to increase. The parameters being compared might be just peaks, just troughs, closing prices, or averages, but formally it is defined as increased in successive peaks and troughs both. Continue reading...

Keywords: peak, MACD,

## How to use the MACD in trading?

Moving Average Convergence Divergence (MACD) is a frequently used momentum indicator composed of several moving average lines. A MACD line is plotted by using the&nbsp;exponential moving average (EMA)&nbsp;over 12-day periods and subtracting the EMA of 26-day periods. A “signal line” – the 9-day EMA – is then plotted on top of the MACD line. A histogram is also usually included to indicate the divergence between the signal line and the MACD. When the MACD and the signal line cross paths, these points of convergence are widely used as trading indicators that trends are starting or ending. Continue reading...

## Who are Chartists?

Chartists are technical traders, theorists, and experts in charting, with the goal of better representing data and using charts to the greatest effect in trading. They attempt to find parameters and algorithms that can offer efficient trading signals and profits, using only the information present on charts – a type of&nbsp;technical analysis. Technical analysis is a discipline that involves identifying price ranges,&nbsp;trend momentum, and points of possible reversals via graphical representations of the math behind price movements, examining information to the second or third&nbsp;derivative, and using trial-and-error with formulas. Geometry, calculus, physics, and finance all play a part in this methodology. Continue reading...

## What is a Moving Average Ribbon?

A moving average ribbon is created by plotting many incremental moving average lines on top of the same price chart. The visual relationship of the moving averages can help reveal crossover points, which traders can use as trade signals. As with other crossover indicators, the shorter-term moving average lines will tend to move more than the longer-term ones, and the degree of momentum that the crossovers imply increases for moving average lines of lengthier look-back periods. Continue reading...

## How to use Momentum Indicators in trading

A momentum indicator allows for a quick comparison of a security’s current price relative to its past prices using a flexible time period, allowing traders to decide the parameters. The formula to calculate momentum is M = V – Vx (where V is the current price and Vx is the closing price from x number of days ago). A current price in excess of past price is a positive momentum indicator; a lower current price represents negative momentum. Continue reading...

## How to use the Detrended Price Oscillator in trading

The Detrended Price Oscillator (DPO) is a relatively uncomplicated tool of analysis that can be used to simplify a chart and identify conditions ripe for buying or selling. It turns the moving average line of a price chart into a flat horizontal axis, with prices plotted according to their distance from the moving average. Moving averages are important components of many technical indicators. A simple moving average determines the average of a range of closing prices for a security or index for a specific period of time. An exponential moving average is a moving average that gives more weight to the most recent data. Simple moving averages are not weighted for time the way that exponential moving averages are, which has the effect of snapping the chart to the most current information, while simple moving averages have lag. Continue reading...

## How to use Simple Moving Averages in trading

Investors and traders are in constant search of tools they can use to gain any possible advantages from shifting markets. Technical indicators are especially vital parts of any trader’s kit, and few indicators are as consistent (and dependable) as moving averages. A Simple Moving Average (SMA) is a technical indicator that can help traders determine whether a bull or bear trend will continue or reverse course. It typically adds up closing prices for a given time period, then divides that figure by the number of time periods used for the average. Continue reading...

## How to use the On-Balance Volume in trading?

On-Balance Volume (OBV) is a popular leading indicator introduced in the 1960s by Joe Granville. OBV is a line built using differences between daily trading volume – in Granville’s estimation, the major driver of market behavior – adding the difference on days that the market or stock moves up and subtracting the difference on days when the market or stock moves down. It looks for instances of rising&nbsp;volume&nbsp;that should correlate with price movement, but price movement has not occurred; additionally, OBV can be used to confirm lag. Continue reading...

## How to use the Aroon Indicators in trading?

The Aroon Indicators are a pair of momentum indicators – the Aroon Up value and Aroon Down value – named after the Sanskrit word for the first light of day. Each indicator represents a standardized value for the strength of the upward or downward pressure on a stock, which analysts can compare to determine if there is a&nbsp;trend emerging. Aroon looks at the latency between highs for certain rolling time periods, with 25 days being the standard time frame. Continue reading...

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## How to use the Accumulative Swing Index in trading?

The Accumulative Swing Index (ASI) is a trendline representing the running total of an oscillator called the Swing Index, first described by Webb Wilder in his book, “New Concepts in Technical Trading Systems.” The Swing Index itself compares the price data from the current period and the preceding period to quantify the positive or negative “swing,” which can be understood as a measure of directional velocity in a price. Continue reading...

## What is a resistance line?

A resistance line is the inverse of a support line and represents the glass ceiling through which a&nbsp;security price&nbsp;has difficulty breaking through. Resistance lines are calculated as part of analysis methods which use&nbsp;moving averages&nbsp;and&nbsp;standard deviation, or similar calculations, to put a range of probability on the expected movement of a security price, with the resistance line representing the top of that range. Continue reading...