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