Indicators and Volume Flashcards
Why is Volume relevant?
If you have a single trade that happens at a given price, that doesn’t mean the stock is valued at that price, but the more volume you have, the more solidified that value of the stock becomes
if there is a price movement but no volume increase, it’s not as meaningful as a price AND volume increase, the volume confirms the price
The important thing to understand is that volume PRECEEDS price.
You always want to look at volume, since it always preceeds price
If prices go up but volume doesn’t, there is very low probability of continuation
What is a Technical Indicator?
Mathematical computation based on historical price and volume which aims to help forcast futur price mouvement and is mostly used for entry/
exit signals.
What is a Bollinger Band?
Bollinger bands are composed of a N-period moving average and two bands. An upper band that is set at X times above the moving average, and a lower band that is set
X times bellow the moving average.
This works in a bell-curve probability scale of standard deviation. the typical Bollinger Band indicates with a 65%-80% accuracy
What is RSI?
Relative Strength Index (RSI)
This is a momentum oscillator that tracks the speed and change of price movements.
The RSI gives an indication of recent price action performance and can range from
0 to 100. The default periods computed on is 14 days. The lower the RSI the more
oversold the stock is and the higher the RSI the more overbought the stock is. Usualy
an RSI under 30 is considered oversold and over 70 is overbought.
What is ATR?
The average true range (ATR) is a technical analysis indicator that measures market volatility by decomposing the entire range of an asset price for that period.
The ATR is gonna help you figure out how much a stock moves, and as such, figure out when to take your loss or sell.
the amount of stocks you’re gonna buy in the both of them is gonna be different
you’re not gonna buy as many stocks in a volatile company because it’s too risky
if a stock with an ATR of 5 dollars starts at 50 and reaches 51, you don’t wanna sell it at 51 because the ATR indicates it still has a lot more room to move
If a stock with an ATR of 0.20 dollars starts at 20 and reaches 20.18, you should sell it, because the likelihood that it will change price any further is very small
