Top Ten Advanced Indicators

with
Thomas Long
Leveraged foreign exchange and options trading carries a significant level of risk,
and may not be suitable for all investors. The high degree of leverage can work
against you as well as for you. Before deciding to invest in foreign exchange you
should carefully consider your investment objectives, level of experience, and risk
appetite. You should be aware of all the risks associated with foreign exchange
and option trading, and seek advice froman independent financial advisor if you
have any doubts. The contents provided in this seminar are subject to change at
anytime without notice.
There is no guarantee that the systems, trading techniques, trading methods,
indicators or other information presented at this seminar will result in profits or not
result in losses. The content is provided for informational purposes only and is not
intendedas a tradingrecommendation.
Risk Disclaimer
Technical indicators are a tool designed
to help you time your entry into a trade.
But in order to use them this way, you
first have to identify a trading opportunity.
We identify a buying opportunity as
a pullback down to support when the
market is in an uptrend.
We identify a selling opportunity
as a rally up to resistance when
the market is in a downtrend.
Donchian Channels (sometimes called Price Channels)
Developed more than 50 years ago by Richard Donchian, who
eventually become known as the father of modern commodities
trading methods, these channels are formed by noting the highest
high and the lowest low of the certain number of days on a chart.
The Donchian channel is a useful indicator for seeing the volatility of
a market price. If a price is stable the Donchian channel will be
relatively narrow. If the price fluctuates a lot the Donchian channel
will be wider. Its primary use, however, is for providing signals for
long and short positions. If a security trades above its highest n day
high, then a long is established. If it trades below its lowest n day
low, then a short is established. But only in the direction of the trend.
Aroon
Developed by Tushar Chande in 1995, Aroon is an indicator system that
can be used to determine whether a stock is trending or not and how
strong the trend is. "Aroon" means "Dawn's Early Light" in Sanskrit and
Chande chose that name for this indicator since it is designed to reveal
the beginning of a new trend.
The Aroon indicator system consists of two lines, 'Aroon (up)' and 'Aroon
(down)'. It takes a single parameter which is the number of time periods
to use in the calculation.
Aroon (up) is the amount of time (on a percentage basis) that has
elapsed between the start of the time period and the point at which the
highest price during that time period occurred. If the currency pair closes
at a new high for the given period, Aroon (up) will be +100. Aroon (down)
is calculated in just the opposite manner, looking for new lows instead of
new highs. When a new low is set, Aroon (down) is equal to +100.
McGinley Dynamic
Alittle known technical indicator developed by J ohn
McGinley in 1990. The indicator attempts to solve a
problem inherent in moving averages which use fixed
time lengths (i.e. a 10 or 21 period moving average), a
problem that causes those moving averages to be outrun
in fast markets.
McGinley sought to invent an indicator that would
automatically be more responsive to the raw data than
simple or exponential moving averages.
Linear Regression Indicator
Plots the trend of a market instruments price
over a specified length of time. However, unlike
a moving average, the Linear Regression
Indicator does not exhibit as much delay since it
is fitting a line to data points rather than
averaging them.
Bollinger Band Width
An indicator derived from Bollinger Bands. In his book,
Bollinger on Bollinger Bands, J ohn Bollinger refers to
Bollinger BandWidth as an indicators that can be derived
from Bollinger Bands. The other indicator is %B.
Non-normalized BandWidth measures the distance, or
difference, between the upper band and the lower band.
BandWidth decreases as Bollinger Bands narrow and
increases as Bollinger Bands widen. Because Bollinger
Bands are based on the standard deviation, falling
Bandwidth reflects decreasing volatility and rising
Bandwidth reflects increasing volatility.
Bollinger Band %B
Derived from Bollinger Bands. In his book, Bollinger on Bollinger
Bands, J ohn Bollinger refers to %B as one of two indicators that can
be derived from Bollinger Bands. The other indicator is Bollinger Band
width.
%B quantifies a security's price relative to the upper and lower
Bollinger Band. There are six basic relationship levels:
%B equals 1 when price is at the upper band
%B equals 0 when price is at the lower band
%B is above 1 when price is above the upper band
%B is below 0 when price is below the lower band
%B can be used to identify overbought and oversold situations.
Rate of Change
The Rate of Change (ROC) indicator is a very simple yet effective
momentum oscillator that measures the percent change in price
from one period to the next. The ROC calculation compares the
current price with the price n periods ago.
The plot forms an oscillator that fluctuates above and below the
zero line as the Rate of Change moves from positive to negative.
The oscillator can be used as any other momentum oscillator by
looking for higher lows, lower highs, positive and negative
divergences, and crosses above and below zero for signals.
Parabolic SAR
Developed by Welles Wilder, the Parabolic SAR sets trailing price
stops for long or short positions. Also referred to as the stop-and-
reversal indicator (SAR stands for "stop and reversal"), Parabolic
SAR is more popular for setting stops than for establishing direction
or trend. Wilder recommended establishing the trend first, and then
trading with Parabolic SAR in the direction of the trend. If the trend is
up, buy when the indicator moves below the price. If the trend is
down, sell when the indicator moves above the price.
StochRSI
Developed by Tushard Chande and Stanley Kroll, StochRSI is an oscillator
that measures the level of RSI relative to its range, over a set period of
time. The indicator uses RSI as the foundation and applies to it the
formula behind Stochastics. The result is an oscillator that fluctuates
between 0 and 1.
In their 1994 book, The New Technical Trader, Chande and Kroll explain
that RSI sometimes trades between 80 and 20 for extended periods
without reaching overbought and oversold levels. Traders looking to enter
a market based on an overbought or oversold reading in RSI might find
themselves continuously on the sidelines. To increase the sensitivity and
provide a method for identifying overbought and oversold levels in RSI,
Chande and Kroll developed StochRSI.
Fractal
Recurring patterns that can predict reversals among larger, more
chaotic price movements.
These basic fractals are composed of five or more bars. The rules for
identifying fractals are as follows:
A bearish turning point occurs when there is a pattern with the highest
high in the middle and two lower highs on each side.
A bullish turning point occurs when there is a pattern with the lowest
low in the middle and two higher lows on each side.
1. Open daily chart with one year of trading.
2. Add 200-day Simple Moving Average.
3. Look for strongest trending markets.
4. Use your favorite technical indicator to time
your entry in the direction of the trend.
Top Ten Advanced Indicators
with
Thomas Long