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Thread: Technical Indicators

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    Lightbulb Technical Indicators



    Indicators will help you identify trends and reversal points, and it will give you a better insight into the balance of power between bulls and bears. For Me Indicators are more objective than chart patterns.

    A good trader needs to know which indicator works in which market condition, you must understand what it measures and how it interacts with the price action. Most Traders divide indicators into

    Trend Following Indicators – these include moving averages, MACD, MACD Histogram. These indicators are lagging indicators and turn after trends reverse.

    Oscillators – help to identify turning points, they include stochastic, RSI and momentum. Oscillators, often turns ahead of prices.

    An indicator is a result of mathematical calculation, based on prices and/or volume. The figures received are used for forecasting price changes. There is a vast number of elaborated technical indicators. Some of them are presented in MetaTrader 4

    Basic Technical Indicator, Presented In MetaTrader :
    Misc. Technical Indicator
    =========================
    Visit Another My Thread :
    - E-book 2 Download
    Last edited by fajarmulya; 04-28-2007 at 10:07 AM.

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    Lightbulb Accelerator/Decelerator Oscillator AC

    Acceleration/Deceleration Technical Indicator (AC) measures acceleration and deceleration of the current driving force. This indicator will change direction before any changes in the driving force, which, it its turn, will change its direction before the price. If you realize that Acceleration/Deceleration is a signal of an earlier warning, it gives you evident advantages.
    The nought line is basically the spot where the driving force is at balance with the acceleration. If Acceleration/Deceleration is higher than nought, then it is usually easier for the acceleration to continue the upward movement (and vice versa in cases when it is below nought). Unlike in case with Awesome Oscillator, it is not regarded as a signal when the nought line is crossed. The only thing that needs to be done to control the market and make decisions is to watch for changes in color. To save yourself serious reflections, you must remember: you can not buy with the help of Acceleration/Deceleration, when the current column is colored red, and you can not sell, when the current column is colored green.
    If you enter the market in the direction of the driving force (the indicator is higher than nought, when buying, or it is lower than nought, when selling), then you need only two green columns to buy (two red columns to sell). If the driving force is directed against the position to be opened (indicator below nought for buying, or higher than nought for selling), a confirmation is needed, hence, an additional column is required. In this case the indicator is to show three red columns over the nought line for a short position and three green columns below the nought line for a long position.


    Calculation

    AC bar chart is the difference between the value of 5/34 of the driving force bar chart and 5-period simple moving average, taken from that bar chart.
    AO = SMA(median price, 5)-SMA(median price, 34)
    AC = AO-SMA(AO, 5)

    Where:
    SMA Simple Moving Average;
    AO Awesome Oscillator.

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    Lightbulb Accumulation/Distribution A/D

    Accumulation/Distribution Technical Indicator is determined by the changes in price and volume. The volume acts as a weighting coefficient at the change of price the higher the coefficient (the volume) is, the greater the contribution of the price change (for this period of time) will be in the value of the indicator.
    In fact, this indicator is a variant of the more commonly used indicator On Balance Volume. They are both used to confirm price changes by means of measuring the respective volume of sales.
    When the Accumulation/Distribution indicator grows, it means accumulation (buying) of a particular security, as the overwhelming share of the sales volume is related to an upward trend of prices. When the indicator drops, it means distribution (selling) of the security, as most of sales take place during the downward price movement.
    Divergences between the Accumulation/Distribution indicator and the price of the security indicate the upcoming change of prices. As a rule, in case of such divergences, the price tendency moves in the direction in which the indicator moves. Thus, if the indicator is growing, and the price of the security is dropping, a turnaround of price should be expected.


    Calculation:

    A certain share of the daily volume is added to or subtracted from the current accumulated value of the indicator. The nearer the closing price to the maximum price of the day is, the higher the added share will be. The nearer the closing price to the minimum price of the day is, the greater the subtracted share will be. If the closing price is exactly in between the maximum and minimum of the day, the indicator value remains unchanged.
    A/D(i) =((CLOSE(i) - LOW(i)) - (HIGH(i) - CLOSE(i)) * VOLUME(i) / (HIGH(i) - LOW(i)) + A/D(i-1)
    Where:
    A/D(i) importance of the Indicator of the Accumulation/Distribution for the current bar;
    CLOSE(i) the price of the closing the bar;
    LOW(i) the minimum price of the bar;
    HIGH(i) the maximum price of the bar;
    VOLUME(i) volume;
    A/D(i-1) importance of the Indicator of the Accumulation/Distribution for previous bar.

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    Lightbulb Alligator

    "Most of the time the market remains stationary. Only for some 15–30% of time the market generates trends, and traders who are not located in the exchange itself derive most of their profits from the trends. My Grandfather used to repeat: "Even a blind chicken will find its corns, if it is always fed at the same time". We call the trade on the trend "a blind chicken market". It took us years, but we have produced an indicator, that lets us always keep our powder dry until we reach the blind chicken market"
    Bill Williams
    In principle, Alligator Technical Indicator is a combination of Balance Lines (Moving Averages) that use fractal geometry and nonlinear dynamics.
    • The blue line (Alligator’s Jaw) is the Balance Line for the timeframe that was used to build the chart (13-period Smoothed Moving Average, moved into the future by 8 bars);
    • The red line (Alligator’s Teeth) is the Balance Line for the value timeframe of one level lower (8-period Smoothed Moving Average, moved by 5 bars into the future);
    • The green line (Alligator’s Lips) is the Balance Line for the value timeframe, one more level lower (5-period Smoothed Moving Average, moved by 3 bars into the future).
    Lips, Teeth and Jaw of the Alligator show the interaction of different time periods. As clear trends can be seen only 15 to 30 per cent of the time, it is essential to follow them and refrain from working on markets that fluctuate only within certain price periods.
    When the Jaw, the Teeth and the Lips are closed or intertwined, it means the Alligator is going to sleep or is asleep already. As it sleeps, it gets hungrier and hungrier — the longer it will sleep, the hungrier it will wake up. The first thing it does after it wakes up is to open its mouth and yawn. Then the smell of food comes to its nostrils: flesh of a bull or flesh of a bear, and the Alligator starts to hunt it. Having eaten enough to feel quite full, the Alligator starts to lose the interest to the food/price (Balance Lines join together) — this is the time to fix the profit.


    Last edited by fajarmulya; 04-28-2007 at 10:08 AM.

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    Lightbulb Average Directional Movement Index ADX

    Average Directional Movement Index Technical Indicator (ADX) helps to determine if there is a price trend. It was developed and described in detail by Welles Wilder in his book "New concepts in technical trading systems".
    The simplest trading method based on the system of directional movement implies comparison of two direction indicators: the 14-period +DI one and the 14-period -DI. To do this, one either puts the charts of indicators one on top of the other, or +DI is subtracted from -DI. W. Wilder recommends buying when +DI is higher than -DI, and selling when +DI sinks lower than -DI.
    To these simple commercial rules Wells Wilder added "a rule of points of extremum". It is used to eliminate false signals and decrease the number of deals. According to the principle of points of extremum, the "point of extremum" is the point when +DI and -DI cross each other. If +DI raises higher than -DI, this point will be the maximum price of the day when they cross. If +DI is lower than -DI, this point will be the minimum price of the day they cross.
    The point of extremum is used then as the market entry level. Thus, after the signal to buy (+DI is higher than -DI) one must wait till the price has exceeded the point of extremum, and only then buy. However, if the price fails to exceed the level of the point of extremum, one should retain the short position.


    Calculation

    ADX = SUM[(+DI-(-DI))/(+DI+(-DI)), N]/N Where:
    N the number of periods used in the calculation.

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    Lightbulb Average True Range ATR

    Average True Range Technical Indicator (ATR) is an indicator that shows volatility of the market. It was introduced by Welles Wilder in his book "New concepts in technical trading systems". This indicator has been used as a component of numerous other indicators and trading systems ever since.
    Average True Range can often reach a high value at the bottom of the market after a sheer fall in prices occasioned by panic selling. Low values of the indicator are typical for the periods of sideways movement of long duration which happen at the top of the market and during consolidation. Average True Range can be interpreted according to the same principles as other volatility indicators. The principle of forecasting based on this indicator can be worded the following way: the higher the value of the indicator, the higher the probability of a trend change; the lower the indicators value, the weaker the trends movement is.


    Calculation

    True Range is the greatest of the following three values:
    • difference between the current maximum and minimum (high and low);
    • difference between the previous closing price and the current maximum;
    • difference between the previous closing price and the current minimum.
    The indicator of Average True Range is a moving average of values of the true range.

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    Lightbulb Awesome Oscillator AO

    Awesome Oscillator Technical Indicator (AO) is a 34-period simple moving average, plotted through the middle points of the bars (H+L)/2, which is subtracted from the 5-period simple moving average, built across the central points of the bars (H+L)/2. It shows us quite clearly whats happening to the market driving force at the present moment.
    Signals to buy

    Saucer

    This is the only signal to buy that comes when the bar chart is higher than the nought line. One must bear in mind:
    • the saucer signal is generated when the bar chart reversed its direction from the downward to upward. The second column is lower than the first one and is colored red. The third column is higher than the second and is colored green.
    • for the saucer signal to be generated the bar chart should have at least three columns.
    Keep in mind, that all Awesome Oscillator columns should be over the nought line for the saucer signal to be used.

    Nought line crossing

    The signal to buy is generated when the bar chart passes from the area of negative values to that of positive. It comes when the bar chart crosses the nought line. As regards this signal:
    • for this signal to be generated, only two columns are necessary;
    • the first column is to be below the nought line, the second one is to cross it (transition from a negative value to a positive one);
    • simultaneous generation of signals to buy and to sell is impossible.
    Two pikes

    This is the only signal to buy that can be generated when the bar chart values are below the nought line. As regards this signal, please, bear in mind:
    • the signal is generated, when you have a pike pointing down (the lowest minimum) which is below the nought line and is followed by another down-pointing pike which is somewhat higher (a negative figure with a lesser absolute value, which is therefore closer to the nought line), than the previous down-looking pike.
    • the bar chart is to be below the nought line between the two pikes. If the bar chart crosses the nought line in the section between the pikes, the signal to buy doesnt function. However, a different signal to buy will be generated nought line crossing.
    • each new pike of the bar chart is to be higher (a negative number of a lesser absolute value that is closer to the nought line) than the previous pike.
    • if an additional higher pike is formed (that is closer to the nought line) and the bar chart has not crossed the nought line, an additional signal to buy will be generated.
    Signals to sell

    Awesome Oscillator signals to sell are identical to the signals to buy. The saucer signal is reversed and is below zero. Nought line crossing is on the decrease the first column of it is over the nought, the second one is under it. The two pikes signal is higher than the nought line and is reversed too.


    Calculation

    AO is a 34-period simple moving average, plotted through the central points of the bars (H+L)/2, and subtracted from the 5-period simple moving average, graphed across the central points of the bars (H+L)/2.
    MEDIAN PRICE = (HIGH+LOW)/2
    AO = SMA(MEDIAN PRICE, 5)-SMA(MEDIAN PRICE, 34)

    Where:
    SMA Simple Moving Average.

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    Lightbulb Bollinger Bands BB

    Bollinger Bands Technical Indicator (BB) is similar to Envelopes. The only difference is that the bands of Envelopes are plotted a fixed distance (%) away from the moving average, while the Bollinger Bands are plotted a certain number of standard deviations away from it. Standard deviation is a measure of volatility, therefore Bollinger Bands adjust themselves to the market conditions. When the markets become more volatile, the bands widen and they contract during less volatile periods.
    Bollinger Bands are usually plotted on the price chart, but they can be also added to the indicator chart (Custom Indicators). Just like in case of the Envelopes, the interpretation of the Bollinger Bands is based on the fact that the prices tend to remain in between the top and the bottom line of the bands. A distinctive feature of the Bollinger Band indicator is its variable width due to the volatility of prices. In periods of considerable price changes (i.e. of high volatility) the bands widen leaving a lot of room to the prices to move in. During standstill periods, or the periods of low volatility the band contracts keeping the prices within their limits.
    The following traits are particular to the Bollinger Band:
    1. abrupt changes in prices tend to happen after the band has contracted due to decrease of volatility.
    2. if prices break through the upper band, a continuation of the current trend is to be expected.
    3. if the pikes and hollows outside the band are followed by pikes and hollows inside the band, a reverse of trend may occur.
    4. the price movement that has started from one of the bands lines usually reaches the opposite one. The last observation is useful for forecasting price guideposts.

    Calculation

    Bollinger bands are formed by three lines. The middle line (ML) is a usual Moving Average.
    ML = SUM [CLOSE, N]/N
    The top line, TL, is the same as the middle line a certain number of standard deviations (D) higher than the ML.
    TL = ML + (D*StdDev)
    The bottom line (BL) is the middle line shifted down by the same number of standard deviations.
    BL = ML (D*StdDev)
    Where:
    N is the number of periods used in calculation;
    SMA Simple Moving Average;
    StdDev means Standard Deviation.
    StdDev = SQRT(SUM[(CLOSE SMA(CLOSE, N))^2, N]/N)
    It is recommended to use 20-period Simple Moving Average as the middle line, and plot top and bottom lines two standard deviations away from it. Besides, moving averages of less than 10 periods are of little effect.

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    Lightbulb Commodity Channel Index CCI

    Commodity Channel Index Technical Indicator (CCI) measures the deviation of the commodity price from its average statistical price. High values of the index point out that the price is unusually high being compared with the average one, and low values show that the price is too low. In spite of its name, the Commodity Channel Index can be applied for any financial instrument, and not only for the wares.
    There are two basic techniques of using Commodity Channel Index:
    1. Finding the divergences
      The divergence appears when the price reaches a new maximum, and Commodity Channel Index can not grow above the previous maximums. This classical divergence is normally followed by the price correction.
    2. As an indicator of overbuying/overselling
      Commodity Channel Index usually varies in the range of 100. Values above +100 inform about overbuying state (and about a probability of correcting decay), and the values below 100 inform about the overselling state (and about a probability of correcting increase).

    Calculation
    1. To find a Typical Price. You need to add the HIGH, the LOW, and the CLOSE prices of each bar and then divide the result by 3.

      TP = (HIGH + LOW +CLOSE)/3
    2. To calculate the n-period Simple Moving Average of typical prices.

      SMA(TP, N) = SUM[TP, N]/N
    3. To subtract the received SMA(TP, N) from Typical Prices.

      D = TP SMA(TP, N)
    4. To calculate the n-period Simple Moving Average of absolute D values.

      SMA(D, N) = SUM[D, N]/N
    5. To multiply the received SMA(D, N) by 0,015.

      M = SMA(D, N) * 0,015
    6. To divide M by D

      CCI = M/D
    Where:
    SMA Simple Moving Average;
    N number of periods, used for calculation.

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    Lightbulb DeMarker DeM

    Demarker Technical Indicator is based on the comparison of the period maximum with the previous period maximum. If the current period (bar) maximum is higher, the respective difference between the two will be registered. If the current maximum is lower or equaling the maximum of the previous period, the naught value will be registered. The differences received for N periods are then summarized. The received value is used as the numerator of the DeMarker and will be divided by the same value plus the sum of differences between the price minima of the previous and the current periods (bars). If the current price minimum is greater than that of the previous bar, the naught value will be registered.
    When the indicator falls below 30, the bullish price reversal should be expected. When the indicator rises above 70, the bearish price reversal should be expected.
    If you use periods of longer duration, when calculating the indicator, youll be able to catch the long term market tendency. Indicators based on short periods let you enter the market at the point of the least risk and plan the time of transaction so that it falls in with the major trend.


    Calculation:

    The value of the DeMarker for the "i" interval is calculated as follows:
    • The DeMax(i) is calculated:
      If high(i) > high(i-1) , then DeMax(i) = high(i)-high(i-1), otherwise DeMax(i) = 0
    • The DeMin(i) is calculated:
      If low(i) < low(i-1), then DeMin(i) = low(i-1)-low(i), otherwise DeMin(i) = 0
    • The value of the DeMarker is calculated as:
      DMark(i) = SMA(DeMax, N)/(SMA(DeMax, N)+SMA(DeMin, N))
    Where:
    SMA Simple Moving Average;
    N the number of periods used in the calculation.

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    Lightbulb Envelopes

    Envelopes Technical Indicator is formed with two Moving Averages one of which is shifted upward and another one is shifted downward. The selection of optimum relative number of band margins shifting is determined with the market volatility: the higher the latter is, the stronger the shift is.
    Envelopes define the upper and the lower margins of the price range. Signal to sell appears when the price reaches the upper margin of the band; signal to buy appears when the price reaches the lower margin.
    The logic behind envelopes is that overzealous buyers and sellers push the price to the extremes (i.e., the upper and lower bands), at which point the prices often stabilize by moving to more realistic levels. This is similar to the interpretation of Bollinger Bands.


    Calculation

    Upper Band = SMA(CLOSE, N)*[1+K/1000]
    Lower Band = SMA(CLOSE, N)*[1-K/1000]

    Where:
    SMA Simple Moving Average;
    N averaging period;
    K/1000 the value of shifting from the average (measured in basis points).

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    Lightbulb Force Index FRC

    Force Index Technical Indicator was developed by Alexander Elder. This index measures the Bulls Power at each increase, and the Bulls Power at each decrease. It connects the basic elements of market information: price trend, its drops, and volumes of transactions. This index can be used as it is, but it is better to approximate it with the help of Moving Average. Approximation with the help a short moving average (the author proposes to use 2 intervals) contributes to finding the best opportunity to open and close positions. If the approximations is made with long moving average (period 13), the index shows the trends and their changes.
    • It is better to buy when the forces become minus (fall below zero) in the period of indicator increasing tendency;
    • The force index signalizes the continuation of the increasing tendency when it increases to the new peak;
    • The signal to sell comes when the index becomes positive during the decreasing tendency;
    • The force index signalizes the Bears Power and continuation of the decreasing tendency when the index falls to the new trough;
    • If price changes do not correlate to the corresponding changes in volume, the force indicator stays on one level, which tells you the trend is going to change soon.


    Calculation

    The force of every market movement is characterized by its direction, scale and volume. If the closing price of the current bar is higher than the preceding bar, the force is positive. If the current closing price if lower than the preceding one, the force is negative. The greater the difference in prices is, the greater the force is. The greater the transaction volume is, the greater the force is.

    FORCE INDEX (i) = VOLUME (i) * ((MA (ApPRICE, N, i) - MA (ApPRICE, N, i-1))
    where:
    FORCE INDEX (i) Force Index of the current bar;
    VOLUME (i) volume of the current bar;
    MA (ApPRICE, N, i) any Moving Average of the current bar for N period:
    Simple, Exponential, Weighted or Smoothed;
    ApPRICE applied price;
    N period of the smoothing;
    MA (ApPRICE, N, i-1) any Moving Average of the previous bar.

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    Lightbulb Fractals

    All markets are characterized by the fact that on the most part the prices do not change too much, and only short periods of time (1530 percent) account for trend changes. Most lucrative periods are usually the case when market prices change according to a certain trend.
    A Fractal is one of five indicators of Bill Williams trading system, which allows to detect the bottom or the top.
    Fractal Technical Indicator it is a series of at least five successive bars, with the highest HIGH in the middle, and two lower HIGHs on both sides. The reversing set is a series of at least five successive bars, with the lowest LOW in the middle, and two higher LOWs on both sides, which correlates to the sell fractal. The fractals are have High and Low values and are indicated with the up and down arrows.
    The fractal needs to be filtrated with the use of Alligator. In other words, you should not close a buy transaction, if the fractal is lower than the Alligators Teeth, and you should not close a sell transaction, if the fractal is higher than the Alligators Teeth. After the fractal signal has been created and is in force, which is determined by its position beyond the Alligators Mouth, it remains a signal until it gets attacked, or until a more recent fractal signal emerges.



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    Lightbulb Gator Oscillator Gator

    "Most of the time the market remains stationary. Only for some 1530% of time the market generates trends, and traders who are not located in the exchange itself derive most of their profits from the trends. My Grandfather used to repeat: "Even a blind chicken will find its corns, if it is always fed at the same time". We call the trade on the trend "a blind chicken market". It took us years, but we have produced an indicator, that lets us always keep our powder dry until we reach the blind chicken market"
    Bill Williams
    In principle, Alligator Technical Indicator is a combination of Balance Lines (Moving Averages) that use fractal geometry and nonlinear dynamics.
    • The blue line (Alligators Jaw) is the Balance Line for the timeframe that was used to build the chart (13-period Smoothed Moving Average, moved into the future by 8 bars);
    • The red line (Alligators Teeth) is the Balance Line for the value timeframe of one level lower (8-period Smoothed Moving Average, moved by 5 bars into the future);
    • The green line (Alligators Lips) is the Balance Line for the value timeframe, one more level lower (5-period Smoothed Moving Average, moved by 3 bars into the future).
    Lips, Teeth and Jaw of the Alligator show the interaction of different time periods. As clear trends can be seen only 15 to 30 per cent of the time, it is essential to follow them and refrain from working on markets that fluctuate only within certain price periods.
    When the Jaw, the Teeth and the Lips are closed or intertwined, it means the Alligator is going to sleep or is asleep already. As it sleeps, it gets hungrier and hungrier the longer it will sleep, the hungrier it will wake up. The first thing it does after it wakes up is to open its mouth and yawn. Then the smell of food comes to its nostrils: flesh of a bull or flesh of a bear, and the Alligator starts to hunt it. Having eaten enough to feel quite full, the Alligator starts to lose the interest to the food/price (Balance Lines join together) this is the time to fix the profit.




    Gator Oscillator is based on the Alligator and shows the degree of convergence/divergence of the Balance Lines (Smoothed Moving Averages). The top bar chart is the absolute difference between the values of the blue and the red lines. The bottom bar chart is the absolute difference between the values of the red line and the green line, but with the minus sign, as the bar chart is drawn top-down.
    Last edited by fajarmulya; 04-28-2007 at 08:15 AM.

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    Lightbulb Ichimoku Kinko Hyo

    Ichimoku Kinko Hyo Technical Indicator is predefined to characterize the market Trend, Support and Resistance Levels, and to generate signals of buying and selling. This indicator works best at weekly and daily charts.
    When defining the dimension of parameters, four time intervals of different length are used. The values of individual lines composing this indicator are based on these intervals:
    • Tenkan-sen shows the average price value during the first time interval defined as the sum of maximum and minimum within this time, divided by two;
    • Kijun-sen shows the average price value during the second time interval;
    • Senkou Span A shows the middle of the distance between two previous lines shifted forwards by the value of the second time interval;
    • Senkou Span B shows the average price value during the third time interval shifted forwards by the value of the second time interval.
    Chinkou Span shows the closing price of the current candle shifted backwards by the value of the second time interval. The distance between the Senkou lines is hatched with another color and called "cloud". If the price is between these lines, the market should be considered as non-trend, and then the cloud margins form the support and resistance levels.
    • If the price is above the cloud, its upper line forms the first support level, and the second line forms the second support level;
    • If the price is below cloud, the lower line forms the first resistance level, and the upper one forms the second level;
    • If the Chinkou Span line traverses the price chart in the bottom-up direction it is signal to buy. If the Chinkou Span line traverses the price chart in the top-down direction it is signal to sell.
    Kijun-sen is used as an indicator of the market movement. If the price is higher than this indicator, the prices will probably continue to increase. When the price traverses this line the further trend changing is possible.
    Another kind of using the Kijun-sen is giving signals. Signal to buy is generated when the Tenkan-sen line traverses the Kijun-sen in the bottom-up direction. Top-down direction is the signal to sell.
    Tenkan-sen is used as an indicator of the market trend. If this line increases or decreases, the trend exists. When it goes horizontally, it means that the market has come into the channel.



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