Trend Studies

Bollinger Bands (BB) – basic interpretation is that prices tend to stay within the upper and lower bands. The characteristics of BB are that the spacing between the bands varies based on the volatility of the prices. During periods of extreme price changes (i.e. high volatility), the bands widen to become more forgiving. During periods of stagnant pricing (i.e. low volatility), the bands narrow to contain prices. BB are displayed as three lines. The middle band is a simple moving average. In the formula “n” is the number of time periods in the moving average.

Exponential Moving Average (EMA) – is calculated by applying a percentage of toady’s closing price to a percentage of yesterday’s moving average value. EMA place more weight on recent prices.

Keltner Channel (ATR Bands) (KCATR) – is a volatility based 'envelope' indicator that measures the movement of symbols in relation to an upper and lower moving-average band. The bands are defined by a number of ATRs (Average True Range) from a middle EMA line. If the closing price passes the upper band it indicates a sell signal. If the closing price passes the lower band it indicates a buy signal.

Moving Average (MA) – shows the average value of a security’s price over a period of time. When calculating MA, a mathematical analysis of the security’s average value over a predetermined time period is made. As the security’s price changes, its average price move up or down. If the price moves above its MA, a buy signal is generated. If the price moves below its MA a sell signal is generated.

Parabolic Stop and Reversal (PSAR) – is used to set trailing price stops. It provides excellent exit points. Close long positions when the price falls below the PSAR and close short positions when the price rises above the PSAR.

Price Channel (PC) – is, in essence, a set of dynamic support and resistance levels. It consists of two lines: an upper channel showing the highest high over the specified number of time periods, and a lower showing the low during the period. Help gauge the ebb and flow of optimism and pessimism. When prices are at or near the upper channel, extreme optimism is indicated – look for prices to meet resistance and to move down to more rational levels. Likewise, when prices are near or at the lower channel extreme pessimism is indicated – look for prices to find support and move up to more rational levels.

Triangular Moving Average (TMA) – place the majority of the weight on the middle portion of the price series. TMA are actually double smoothed simple moving averages.

Weighted Moving Average (WMA) – is designed to put more weight on recent data and less on past data. WMA is calculated by multiplying each of the previous day’s data by a weighting factor, based on the number of days in the moving average.