Indicators and Oscillators

[XL-entLady]

I love finding new technical indicators and oscillators, or looking at old ones in new ways. So here is a thread to share and discuss them. :)

Lady

[XL-entLady]

My favorite new indicator is the TRIX because I've been looking at a lot of charts lately and the TRIX allows me to see the health of the chart at a glance. For any readers who are unfamiliar with it, the TRIX is a Triple Exponential Moving Average. Buy and sell indicators are generated by the TRIX in relation to a signal line.

Here is a TRIX blurb in my financial notes that I copied from Investopedia:

"What Is TRIX?
The triple exponential average (http://www.investopedia.com/terms/e/ema.asp) (TRIX) indicator is an oscillator (http://www.investopedia.com/terms/o/oscillator.asp) used to identify oversold and overbought markets, and it can also be used as a momentum (http://www.investopedia.com/terms/m/momentum.asp) indicator. Like many oscillators, TRIX oscillates around a zero line. When it is used as an oscillator, a positive value indicates an overbought market while a negative value indicates an oversold market. When TRIX is used as a momentum indicator, a positive value suggests momentum is increasing while a negative value suggests momentum is decreasing. Many analysts believe that when the TRIX crosses above the zero line it gives a buy signal, and when it closes below the zero line, it gives a sell signal. Also, divergences between price and TRIX can indicate significant turning points in the market."

The TRIX crossing the signal line to the upside is called a "golden cross" and it's called a "dead cross" if it crosses the signal line to the downside. And some people actually like to use a direction change as their buy and sell signal instead of waiting for a cross.

You can fine-tune the signals for your timeframe. The default is a setting of 15 for the TRIX and 9 for the signal line. But you can also use 10 and 6 or 5 and 3, depending on the timeframe you are looking at. The TRIX isn't much use in day-trading, but for swing trading it can be a lot of help.

TRIX is not just for kids anymore! :toung:

Lady

[XL-entLady]

Just posted this in TSPTalk, but since it's such an interesting indicator I thought I would post it here too. If you inhabit both worlds, please forgive the double post.

Chart of the Week: SPX Price by Volume (http://www.greenfaucet.com/node/5872)

By Bill Luby (http://www.greenfaucet.com/bill-luby) | February 07, 2009


There are many methods that technicians use to help determine when various market moves may run into significant support and resistance. Moving averages are one common method, pivot points are another, and Fibonacci (http://vixandmore.blogspot.com/search/label/Fibonacci) retracement levels are one of my personal favorites.

Another method of gauging support and resistance involves the use of charting price by volume (http://vixandmore.blogspot.com/search/label/price%20by%20volume). As I have lately heard very little about price by volume charts, this seems like a good time to make these charts the subject of this week's chart of the week (http://vixandmore.blogspot.com/search/label/chart%20of%20the%20week).

In the graphic below, in addition to the standard daily volume vertical bars at the bottom, I have used one of the StockCharts tools to plot horizontal bars that represent the total volume for all the days in which the closing price fell in the range described by each horizontal price by volume bar. The longer the bars, the more volume that was transacted within that price range. For more detailed analysis, I have also color coded the price by volume bars so that total volume for each price by volume range can be further decomposed into up volume (gray) and down volume (red).

In terms of time frame, I have used SPX data from the beginning of October 2008, when the SPX first dipped below 1000, to illustrate possible resistance. Note that during this 18 week period, a large portion of the volume fell in the range of approximately 820-920.

With the SPX currently just one point below its 50 day simple moving average (dotted red line), additional upside movement may be harder to come by. According to price by volume charts, however, the biggest resistance should be in the 890-920 area, where not only is the volume by price bar a long one, it is also predominantly red from previous selling pressure.

If the SPX can clear 920, then resistance (as indicated by the length of the bar and also the ratio of red to gray area) seems to fall off dramatically, with 955 looking like a much less formidable hurdle on the road back to 1000.

Of course the charts have no idea what Geithner is going to say on Monday, nor how the House and Senate will resolve their different perspectives on what needs to be included in the economic stimulus package.


http://i104.photobucket.com/albums/m163/bl82/SPXvolbyprice020709.gif (http://i104.photobucket.com/albums/m163/bl82/SPXvolbyprice020709.gif)
[source: StockCharts]


Lady

[etftalk]

I wrote about this in my TSP Talk commentary, but this looks like a good place to mention it here.

When a market is trending, that is making a series of higher highs and higher low (uptrend), or a series of lower lows and lower highs (downtrend), then you want to use an indicator that works best in a trend, like the MACD indicator, trendlinds, moving averages, etc.

If a market is oscillating, bouncing up and down without any noticeable trend, you want to use indicators geared toward finding overbought and oversold levels, such as stochastics, momentum indicators and even sentiment indicators like bull/bear surveys and put/call ratios.

Using the wrong type of indicator for the current market environment, can give you ineffective signals.

[XL-entLady]

I wrote about this in my TSP Talk commentary, but this looks like a good place to mention it here.

When a market is trending, that is making a series of higher highs and higher low (uptrend), or a series of lower lows and lower highs (downtrend), then you want to use an indicator that works best in a trend, like the MACD indicator, trendlinds, moving averages, etc.

If a market is oscillating, bouncing up and down without any noticeable trend, you want to use indicators geared toward finding overbought and oversold levels, such as stochastics, momentum indicators and even sentiment indicators like bull/bear surveys and put/call ratios.

Using the wrong type of indicator for the current market environment, can give you ineffective signals.
And ADX is a good way to figure out if a particular sector is in a trending or trading market. :)

Lady

[etftalk]

And ADX is a good way to figure out if a particular sector is in a trending or trading market. :)

Lady
Great call... ADX (http://www.investopedia.com/articles/technical/02/041002.asp)

[XL-entLady]

My two favorite indicators are TRIX and StochRSI. I've already posted about TRIX on this thread. In my market reading today, I ran across a post from someone who used a fancy trading program to blend the RSI and Fast Stochastic. And he's all excited because of the accuracy of the trading signals he's getting. Well, he's using Stoch RSI! :) And I love it!

According to my StockCharts notes: StochRSI is an oscillator that measures the level of RSI relative to its range, over a set period of time. The indicator uses Relative Strength Indicator (RSI) as the foundation and applies to it the formula behind Stochastics.

RSI is a momentum oscillator that compares the magnitude of gains to the magnitude of losses over a period of time. Stochastics is a momentum oscillator that compares the closing level to the high/low range over a given period of time.

The result is an oscillator that fluctuates between 0 and 1.



Signals

Overbought and Oversold Crossovers: If an uptrend has been identified in the underlying security, then a buy signal would be generated when StochRSI advances from oversold (below .20) to above .20. Conversely, if a downtrend has been identified, then a sell signal would be generated when StochRSI declines from overbought (above .80) to below .80.


Centerline Crossovers:Some traders look for moves above or below .50 (the centerline) to confirm signals and reduce whipsaws. A move from oversold [.20] to above .50 could constitute a buy signal and would remain in place until a decline below .50. Conversely, a move from overbought [.80] to below .50 would could act as a sell signal that would remain in place until an advance back above .50.
Keep in mind thata if a stock remains above .80 for several days, then the same "embedded" rule from Stochastics applies. It's not a trading signal until it moves back down. That's why I like the signal to at least approach the centerline before I act on it.

The bright colors are there because I like to have stuff highlighted in a way I can absorb it at a glance in my personal notebook, when it's refresher day. You know, because things leak out my ear when I sleep. :toung:

Anyway, that's StochRSI. Does anyone else use it?

Lady

[JTH]

ADX Set @ 9 I like looking at bottoms...

http://i138.photobucket.com/albums/q261/Kendlefox/SSO2.jpg

[etftalk]

Interesting JTH. I need to use the ADX more.

[JTH]

This particular post is only refering to $SPX and the time frame posted in the chart. I say this, because I find that ADX does not work with every chart or time frame, so do your homework before applying this indicator to your charts. :idea:

I don't have to like what the indicators tell me, but I do have to respect them and right now they are telling me I was an idiot for not paying attention...

The ADX is set the 9 and we got a sell signal during 9 March.

We got further confirmation when the +DI crossed over the -DI giving a sell signal during 11 March.


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[Gumby]

JTH,

The chart on the $SPX back in late October 2008 to election day November 4, 2008 looks very similar to the current spike. Might we be starting that sell-off soon? I don't want FAZ to set a 52 week low with all of us holding it.:eek:

Thanks for sharing the chart.

[alevin]

Me, I live by the ADX, one of my main indicators. Mostly I use it on weekly timeframe, but I look at the daily, and keep it mainly at 14-week, but sometimes I look at 10-week just for variety. Mainly now waiting to see strong uptrend coming up from below 20 bar. May take awhile yet. I look at daily too on 10 or 14-day window for smaller decisionmaking, but not for big decisions. For those I wait for the weekly crossup.

JTH, you said not useful indicator for every situation, what timeframes and charts do you think ADX less useful for?

[JTH]

JTH, you said not useful indicator for every situation, what timeframes and charts do you think ADX less useful for?

It's good that you brought that up because that's one of the things I'm working on. There is a point where the trend can become choppy and when this happens, the ADX becomes less useful. I'm working on defining when to use it and when to ignore it. As always, it is a work in progress.

9. Trend or Not a Trend

Use ADX. The Average Directional Movement Index (ADX) line helps determine whether a market is in a trending or a trading phase. It measures the degree of trend or direction in the market. A rising ADX line suggests the presence of a strong trend. A falling ADX line suggests the presence of a trading market and the absence of a trend. A rising ADX line favors moving averages; a falling ADX favors oscillators. By plotting the direction of the ADX line, the trader is able to determine which trading style and which set of indicators are most suitable for the current market environment.

http://stockcharts.com/school/doku.php?id=chart_school:trading_strategies:john_m urphy_s_ten_la

[wv-girl]

Did anyone catch this? Looks interesting.

Dick Arms' New Technical Indicator
http://www.thestreet.com/story/10495787/1/dick-arms-new-technical-indicator.html?puc=_cnnmoney&cm_ven=CNNMONEY&cm_cat=Free&cm_pla=Feed&cm_ite=Feed (http://www.thestreet.com/story/10495787/1/dick-arms-new-technical-indicator.html?puc=_cnnmoney&cm_ven=CNNMONEY&cm_cat=Free&cm_pla=Feed&cm_ite=Feed)

[JTH]

Did anyone catch this? Looks interesting.

Dick Arms' New Technical Indicator
http://www.thestreet.com/story/10495787/1/dick-arms-new-technical-indicator.html?puc=_cnnmoney&cm_ven=CNNMONEY&cm_cat=Free&cm_pla=Feed&cm_ite=Feed (http://www.thestreet.com/story/10495787/1/dick-arms-new-technical-indicator.html?puc=_cnnmoney&cm_ven=CNNMONEY&cm_cat=Free&cm_pla=Feed&cm_ite=Feed)

I did spend some time playing around with it, which lead to other simular ideas. It's an interesting concept and could definitly be a good broad indicator for long-term holders.

I have it set at 5, but most of the settings (5, 9, 21) would have had you out of the markets for over 6 months. Time permitting, I'll do some backtesting tonight, and post the results if warented.

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