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FINA 408 Tecnical Analysis > powerpoint 6: momentum and volume indicators > Flashcards

powerpoint 6: momentum and volume indicators Flashcards

1
Q

Volume

A

the amount of shares or contracts traded over a specified period

is portrayed as a vertical bar below the price bar

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2
Q

what is volume used for

A

used to confirm price

therefore volume is secondary to price analysis.

Volume displays the intensity of a move in price

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3
Q

what has volume stats somewhat misleading

A

the increase in arbitrage, HFT and program trading

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4
Q

High volume should go in the direction of what

A

of the trend

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5
Q

Volume not going with the trend is a warning of what

A

a warning of impending trend reversal.

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6
Q

Exceptionally high volume is a signal of what?

A

Exceptionally high volume is a signal of an important change

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7
Q

analysis of volume when prices are rising

A

Volume increasing is confirming

Volume decreasing is questionable (puts upward trend in question)

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8
Q

analysis of volume when prices are declining

A

Volume increasing is confirming

Volume decreasing is questionable (puts downward trend in question)

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9
Q

When a price advance halts with high volume, what does it mean

A

a potential top

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10
Q

When a price advance halts with high volume, what does it mean

A

a potential top

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11
Q

When a price decline halts with high volume, what does it mean

A

it is a potential bottom

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12
Q

Volume Indexes

A

comprised of cumulative sums of data measuring supply and demand over time, rather than a specific period.

They do not have an upper and lower bound.

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13
Q

how to analyze volume using volume indexes

A

The Level of the index is irrelevant, it shows absolute changes

Compare price with the index looking for divergences between highs and lows in each.

Can utilize trend lines, sometimes pattern analysis.

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14
Q

when are volu.me indexes most useful

A

in trending markets

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15
Q

On Balance Volume (OBV)

A

Cumulative index of plus or minus volume days based on change of closing prices.

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16
Q

how is the On Balance Volume calculated

A

It is calculated as a cumulative total:

–> If price close is higher than the previous day, add the day’s volume.

–> If price close is lower than the previous day, deduct the day’s volume.

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17
Q

effect of price reaching new highs on OBV

A

If price reaches a new high, confirmation of price strength comes from OBV hitting a new high

High volume should confirm price trend, therefore compare price to OBV

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18
Q

Negative divergence between price and OBV warns what?

A

warn of a potential price reversal.

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19
Q

if OBV breaks its own support or resistance, what could this mean?

A

this break may indicate the direction in which the price breakout will occur.

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20
Q

AD index

A

Accumulation/Distribution index

Similar to OBV, but uses a more specific calculation to calculate the midpoint for the day’s volume:

= Volume X {(Close - Low) – (High - Close)} / (High - Low)

If the close occurs above the midpoint for the day the result is positive accumulation (vice versa)

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21
Q

Volume Related Oscillators

A

Oscillate between an upper and lower bound

Show relative changes.

Used for divergence analysis, trend lines,

sometimes pattern analysis.

Are more useful for trading range markets

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22
Q

Volume Related Oscillators

A move to high upper bound level creates what?

what about a move to a lower bound level?

A

A move to high upper bound level creates an “overbought” condition

a move to a lower bound level produces an “oversold” condition.

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23
Q

Volume Oscillator

what is it and its purpose

A

Is a ratio between two moving averages of volume

is used to determine when volume is expanding or contracting.

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24
Q

Volume Oscillator

what odes expaning volume imply

A

Expanding volume implies strength in the trend, contracting volume implies weakness in the trend.

useful for confirming trend and for giving advanced warning in a trading range of direction for the next breakout

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25
Chaikin Money Flow
Uses the accumulation/distribution calculation for each day. calculated by summing the ADs (accumulation/distribution) over the past 21 days and dividing that sum by the total volume over the past 21 days. This produces an oscillator that rises above zero when an upward trend begins and declines below zero when the trend turns downward
26
Volume spikes
Usually a test of a significant support or resistance level. A sign of a sudden change in information (gap) or other pattern breakout
27
when are volume spikes most common
Most common at the beginning and end of a trend.
28
momentum
leads price action the measure of the velocity of price movements, rather than price movements themselves It is the rate of change of price
29
how can technical analysts use momentum?
gives the technical analyst advanced warning of a potential trend change
30
the rate of change of price
measures how quickly prices are rising or how steeply the trend line is sloping (second derivative of price action over some period).
31
the different types of momentum indicators relevant to exam
Rate of Change (ROC) Moving Average Convergence Divergence (MACD) Stochastic Relative strength Index (RSI).
32
Momentum indicators/oscillators
provide leading signal generators and confirms price
33
how do Momentum oscillators work?
Oscillate between an upper and lower bound so a move to high upper bound level creates an “overbought” condition, and a move to a lower bound level produces an “oversold” condition. (Principle of reversion to the mean) To indicate divergences between momentum and price trend and as a result gives a leading indication to price trend change The crossing of the 0 or midpoint line can give you signals of trend change. Crossover of lines.
34
Momentum - divergences
When momentum fails to confirm the price trend
35
negative divergence
Price hits a higher high, but momentum oscillator hits a lower high.
36
positive divergence
Price hits a lower low, but momentum oscillator hits a higher low
37
Overbought meaning in momentum oscillator
When prices are noticeably above the central trend, and hit the upper boundary level of a momentum oscillator
38
Oversold meaning in momentum oscillator
When prices are noticeably below the central trend, and hit the lower boundary level of a momentum oscillator
39
Other Uses of Momentum Indicators:
You can utilize trend lines, sometimes pattern analysis on them. Helpful to validate breakouts. Used to generate entry and exit signals (but always with respect to trend direction) Most are very useful in non-trending, trading range markets and warns of potential trend change
40
why are momentum signals to be used secondary to price analysis
momentum indicators are Used to generate entry and exit signals but always with respect to trend direction
41
downside of Using multiple momentum indicators
may provide redundant information they all give us something similar
42
MACD – Moving Average Convergence Divergence
Uses two lines; MACD and signal line plotted together below a price chart. uses the 9, 12, 26 period EMAs. (Periods are adjustable)
43
how is the MACD line calculated?
calculated by finding the difference between two exponential moving averages (EMAs) of closing prices: the last 26 and 12 periods (faster EMA line)
44
the signal like of the MACD line
the 9 period EMA of the MACD line (this is the slower EMA line, which is the moving average of the difference between 26 & 12).
45
Histogram of a MACD
the difference between the MACD and its signal line usually appears at the bottom of the chart
46
why is MACD useful in trending markets
because it is unbounded
47
what does it suggest when the MACD is above the 0 line
(short term EMA > long term EMA) it suggests an upward trend
48
How to use MACD Buy signal
when the MACD line crosses the signal line from below and both lines are below the 0 zone Best buy signals occur below the 0 zone
49
How to use MACD Sell signal
when MACD line crosses the signal line from above and above the 0 zone
50
How to use MACD Overbought
When lines are far above the 0 line
51
How to use MACD oversold
When lines are far below the 0 line
52
How to use MACD Divergences
Between highs/lows of MACD lines and highs/lows of price
53
How to use MACD MACD histogram
Provides earlier warnings that current trend is losing momentum
54
ROC - Rate of Change
Measures the amount a stock price has changed over a given number (N) of past periods.
55
the simplest volume oscillator
ROC - Rate of Change
56
problems with the ROC - Rate of Change
Suffers from drop off effect only two prices appear in calculation & these prices are equally weighted
57
ROC - Rate of Change formula
ROC = ((Price today - Price N periods ago) / Price N periods ago)
58
How to use ROC buy signal
when the ROC crosses the 0 line from below
59
How to use ROC sell signal
when the ROC goes lower from above overbought level
60
How to use ROC Divergences
between highs/lows of ROC lines and highs/lows of price
61
the only volume oscillator bounded by the range of 0 - 100
RSI – Relative Strength Index
62
how to use RSI Overbought
Above 70
63
how to use RSI oversold
Below 30
64
problem with RSI and the overbought or oversold conditions
Strong trending markets can stay overbought or oversold for a long time and just because the oscillator moved to the upper or lower bound, it may not be a reason to sell/buy Be careful with trending stocks because in bull markets, the RSI is usually above 50 and RSI ranges from 55 – 85, in bear markets 25 – 60
65
how to use RSI top failure swing
When a peak in RSI over 70 fails to exceed a previous peak in an uptrend (may signal a top) – RSI forms an “M” with the second peak a lower high
66
how to use RSI bottom failure swing
When RSI is in a down trend (under 30), fails to set a new low and then proceeds to exceed a previous peak (may signal a bottom) RSI forms a “W” with the second trough a higher low
67
how to use RSI Divergences
exist between highs/lows of RSI lines and highs/lows of price
68
true or false
Patten analysis can be used directly on the RSI, i.e: trends, triangles
69
who developed the RSI
J. Welles Wilder
70
who popularized the stochastic oscillator
George Lane
71
Stochastic Oscillator
Measures current closing price versus defined past window of prices Signals are the same as for other oscillators %K and %D lines
72
RSI formula
RSI = 100 - (100 / (1 + RS))
73
when does the stochastic oscillator work best?
Works best in trading range markets but still gives valuable info in trending markets
74
Stochastic oscillator different formulas involved
%K = 100 * (Close - Low)/(High - Low) --> 14 day period is the time frame usually needed Fast %D = is the 3 period SMA of the %K line (fast stochastics) Slow %D = the 3 period SMA of the % D line (slow stochastics)
75
How to use Stochastics overbought
above 80
76
How to use Stochastics oversold
below 20
77
How to use Stochastics In trending markets use
Divergences Pattern recognition – trend line breaks, triangles Failure swings
78
How to use Stochastics trading range markets use
Crossovers Failure swings Overbought /oversold
79
How to use Stochastics top failure swing
When a peak in stochastic over 80 fails to exceed a previous peak in an uptrend (this may signal a top)
80
How to use Stochastics bottom failure swing
When stochastic is in a down trend (under 20), fails to set a new low and then proceeds to exceed a previous peak (this may signal a bottom)
81
How to use Stochastics divergences
between highs/lows of Stochastic and highs/lows of price
82
Similarities Between Oscillators
All are similar in use, especially oscillators with overbought and oversold bounds Strong trending markets can stay overbought or oversold for a long time --> Just because an oscillator moved to the upper and lower bound it may not be a reason to sell in an overbought market or buy in an oversold market, but may mean you should actually buy overbought (very strong markets) and sell oversold (very weak markets) Multiple oscillators may give similar results (see next charts)

FINA 408 Tecnical Analysis (16 decks)

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