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Important Take Away – Video 1

=> * MACD Crossover (i.e. the MACD & the 9 days MACD moving average) is faster than the crossover between the 12 and 26 days EMA.

=> * MACD Divergence (about 7 min 30 s).

~Weakening in momentum of Uptrend (opportunity for short): Price at higher high but MACD lower high.

~Weakening in momentum Downtrend (opportunity for long): Price at lower low but MACD higher low.

Important Take Away – Video 2

==> * MACD & Signal Line cross-over, frequent but not reliable.

==> * MACD Centre Line cross-over, lagging but fairly reliable for longer term moves.

==> * Most powerful MACD signal: Divergence with Price (2nd Video, @ 2 m 30 s)

Extensive and detail explanation of MACD from Stockcharts.com

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Bollinger Band

* Bollinger Band basically consists of 3 bands – upper, centre and lower.

* Low Volatility = narrow or contracting bollinger band whereas High Volatiity = wide or widening bollinger band.

* Can be use as a gauge to determine volatility of the market.

* Answers the question: how high / low prices are relative to recent historical price actions?

* Centre band = Simple Moving Average sets at 20 days (Typically).

* Upper and lower bands are at 2 stardard deviations away from centre band.

* Basic Premise: Prices should generally fall within 2 std deviation from the centre band.

* Bollinger should be use in conjunction with other indicators.

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Appended below is a ~5 mins explanation of a momemtun indicator, the MACD – pronounced as MAC-D. Enjoy.

*   MACD is a momentum indicator, it depicts positive momentum when it is above the zero line, and negative momentum when it is below the zero line.

*   Essentially, the MACD line is the difference between 2 exponential moving averages: 12 and 26 days

*   MACD line above zero and rising ==> positive / bullish momentum

*   MACD line below zero and falling ==> negative / bearish momentum

*   MACD Histogram depicts the distance the MACD and the signal line.

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Appended below is a ~ 7 mins explanation on Stochastic Oscillator, enjoy:

- Compares an financial instrument’s closing price to its price range over a period of time, with the premise that in rising market stocks will close near their highs, while in a falling market they will close near their lows – to keep moving towards higher high in an uptrend and lower lows in a downtrend.

*   Three different types of Stockastic Oscillator – Fast, Slow and Full

*   Slow Stockastic Oscillator is used most frequently

*   Stochastic Oscillator:

*   %K and %D

*   %K rising ==> momentum of market is increasing and vice-versa

*   %D is 5 simple moving average of %K

*   Range between 0 – 100 (banded oscillator, upper end range marked by 80 and lower end range marked by 20.

*   Trade Signals: 1. Overbought and Oversold. 2. Crossovers 3. Divergence

Key Points: 

*  Like other indicators, the stochastic oscillator would also have false signal from time to time.

*   Important to use in conjunction with other indicators to get a better overall picture

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