ATQAP: Indicators

Moving Average Convergence Divergence (MACD)

• Momentum indicator calculated by taking the difference of two moving averages of an asset price (typically 12 period MA and 26 period MA).
• A signal line is also calculated which is again a MA (typically 9 period) of the MACD line
• The MACD line cutting the signal line from below signals bullish period and the former cutting the latter from above signals bearish (also called crossover strategy)
• Many false positives -- especially during sideways market
• Suggested to be used in conjunction with other indicators
• Lagging indicator - trails behind the actual price action

Bollinger Bands

• Volatility based indicators
• Bollinger band comprises two lines plotted n (typically 2) standard deviations from a m period (typically 20) simple moving average line. The bands widen during periods of increased volatility.

Average True Range (ATR)

• ATR takes account the market movement each day in either direction and averaging them out.
• It focuses on total price movement and conveys how wildly the market is swinging as it moves
• Traders typically use bollinger bands and ATR in conjunction as tehy approach volatility differently and are complimentary

Relative Strength Index (RSI)

• RSI is a momentum oscillator which measures the speed and change of price movements
• RSI value oscillates between 0 and 100
  • with values above 70 indicating that the asset has now reached overbought
  • with values below 30 signifying oversold
• Overbought and underbought conditions can persist for long periods