Monday, July 30, 2012

The Superior Indicator Most Traders Don't Use...

MetaStock SPRS Series - Week 79 - TechniTrader® Stock Discussion for MetaStock Users - The Importance of Price, Time, and Quantity Indicators - July 30, 2012
By: Martha Stokes C.M.T.


For all of my followers who read this every week:

I have been invited to speak at the MetaStock Conference again this year. I will be teaching a hands-on trading session and yes, the entire presentation in PowerPoint will be printed by the staff at MetaStock for you to use during the training and to take home with you. I want your MetaStock Conference experience to be a memorable one and highly productive for you. If you follow me, be sure and introduce yourself at the conference. I will have some time to work with students and others after the session.

This week I want to review why it is so important to not only use price and time indicators but also quantity and time indicators.

As I tour the country and speak with many traders of all levels of experience, trading styles, disciplines, and strategies, one theme continues to plague their success. Most retail traders use too many price indicators and not enough quantity indicators.

There are 3 primary data that comes from the stock market that MetaStock uses to create the charts that you use every day.

  • Price
  • Quantity
  • Time
It takes 2 of these to create an indicator. When all 3 are used in an indicator, that indicator tends to lead and is far superior to mere price and time indicators.

So why don’t more retail traders use price, quantity, and time indicators? Many retail traders are stuck back in the old days when all that really mattered was price.

You need to keep your trading current, your tools up-to-date, and connect with the market structure we have today. If you use outdated indicators which are old-fashioned technical analysis, you will not make the profits you could have made if you had maintained a cutting edge in terms of tools, indicators, strategies, and methodologies.

Right now, High Frequency Traders HFTs rule intraday and can cause trend changes with one day of action. With so many small funds managers, retail traders, and small lot investors chasing or reacting to the HFT activity, not paying attention to quantity indicators is a major flaw in any trading system you decide to use.

Below is an example of how HFTs move the markets on the short term trend. This example is a range bound stock. The range was created by HFTs actively trading this stock due to its frequent news feeds. HFTs currently are using formulas that capture news as it streams down the internet toward retail side news websites. By catching these news feeds prior to this information actually landing on the retail side of the market news websites, HFTs control the market open and the intraday activity.

HFTs depend upon that second or two second lead time on the news to trigger their automated formula order flow that initiates on the millisecond time scale. By trading a thousand times per second, they are able to capture pennies or fractions of pennies and net profits.


Chart 1

CVX has been actively traded by HFTs over this past year. The super huge volume is their “footprint” that clearly marks their millisecond trading activity. TechniTrader® Quiet Accumulation TTQA shows how smaller funds and some large funds are short term trading this stock. CVX has 1681 Funds holding its shares with 1512 of those funds active during this chart time line.

Since this stock is in the news often, HFTs can take advantage of the emotional response to that news by retail traders who assume the news is for their benefit, small lot investors who buy stocks like day traders assuming the news is accurate, and small funds managers who are told to buy these stocks from the services that cater to small funds managers.

To be successful in today’s lightening fast market activity with HFTs trading on the millisecond, the pros trading with them, and all the other market participants groups rushing around, it is critical that retail traders know: Who is in control of price.

Who is in control of price at this time in the market? Which market participant group is controlling price action up or down? If you know the answer to this question and if you know how that MPG footprint appears on both price and volume, you are going to be one gigantic step ahead of the crowd mentality and you will be far more profitable.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner

©2012 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

Monday, July 23, 2012

The Detrending Price Oscillator

MetaStock SPRS Series - Week 78 - TechniTrader® Stock Discussion for MetaStock Users - The Detrending Price Oscillator - July 23, 2012
By: Martha Stokes C.M.T.


The Detrending Price Oscillator is a unique indicator that has a primary purpose of detrending aka removing the trend, from a stock price chart to reveal the underlying cyclical pattern.

Companies and the stock market have cycles of various timelines and magnitude. Just as in nature, cycles are important data that can help traders identify cycles which aids in understanding price behavior and future price action.

Cycles include the DPO, cycle analysis, cycle deviations, major disruptive cycle forces, etc. and is a huge topic. Today we are going to cover one small aspect of the vast cycle analysis theory I work on continually.


Chart 1

This cycle analysis is based on a 16 period weekly DPO setting. It is designed to first determine if there is a cycle within the price trend or not. AAPL does have a cycle.

Cycle lengths are typically determined by the trough to trough timeframe not the peak to peak timeframe. By incorporating this rule, cycle analysis maintains an integrity that is reliable and accurate.

What we see in the AAPL cycle is very consistent, shorter cycles for AAPL between the years 2008-2010. The cycle shifts at that point and becomes more intensified with higher peaks and lower troughs, but maintains the timeframe reasonable well for a cycle.

Please remember that mild variations of cycle peak, trough, and timeline are normal. Variations that are mild are of less concern.

However in 2012 the trough lengthened, extending the trough timeline and then a major extended peak formed. This is a major deviation of the cycle and its timeline. The typical reaction to an extended peak is an extended trough, which totally skews the timeline destroying the integrity of the prior cycle timeline.

Whenever there is a major deviation to a cycle, traders should be alert to the significance. When cycles deviate to this extent the cycle will not function properly for years, or may never return to its original cycle pattern and timeline.

AAPL has experienced a major extended peak cycle deviation followed by an extended trough. Therefore, the empirical evidence from DPO is that AAPL’s business cycle has changed hugely. The shift is a massive alteration of the cycle.

With this information, traders can begin to assess AAPL’s trendline patterns and price action with a new perspective. This is not some minor variation, and it warns of continued cycle deviations yet to come.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner

©2012 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

Monday, July 16, 2012

Main Article: MetaStock Monitor JULY-AUGUST 12

Non-Farm Disappoints, But Gold Still Ends The Week On A Low. So What’s Next For Gold?
Contributed by Nik Kalsi and Phil Carr

Gold fell 1.6% in less than two hours on Thursday, as monetary policy easing in Europe and China was shortly followed by a better-than-expected US jobs report on Friday. US June non-farm payrolls rose by 80,000 while the jobless rate unchanged at 8.2 per cent, official figures showed.

US employers hired at a dismal pace in June, raising pressure on the Federal Reserve to do more to boost the economy and further imperilling President Barack Obama's chances of re-election in November.

By Friday lunchtime in London, Gold in Dollars was down around $5 per ounce on the week, while the Gold Price in Euros was still showing a 1.9% weekly gain following the weakening of the Euro. Meanwhile Silver fell to $27.10 per ounce – a few cents below where it started the week.

The Gold & Silver Clubs technical analysis on MetaStock’s QuoteCenter shows Gold has been in a three month consolidation range of $1525 to $1640. Despite its flat performance in recent months, we believe it’s likely to rebound before the end of the year and here are three good reasons why...

Quantitative Easing

Last Thursday The Bank of England (BoE) confirmed it was to restart its asset purchase programme with a further £50 billion of quantitative easing (QE). To put that into perspective, that will take the total size of the UK programme to £375 billion. We believe the Federal Reserve will be next to boost the US economy and of course that will result in renewed buying interest in the shiny metal.

Central banks still buying gold

Central banks, the largest holders of gold, may expand reserves for the third year running, according to the World Gold Council.

As gold prices head for a 12th consecutive annual gain, the council forecasts that central banks may buy more this year than the purchases of 456 tons in 2011 as countries diversify their reserves. We believe this makes absolute sense. The last thing that central banks want to hold is dollars. The most obvious thing for them to diversify into is dollar-denominated real assets and the easiest of these is gold.

Indian gold demand: A repeat of 2009?

Another reason why gold is in a consolidation period is due to news that the Indian economy, the biggest global consumer and importer of the commodity, is suffering, with the country registering its slowest quarterly growth of 5.3% in nine years in the first quarter this year.

In early 2009, when the Indian economy faltered and the rupee crumbled, demand all but disappeared. In the first quarter of that year, demand was just 24.2 tonnes, down 77% year-on-year, according to GFMS data. For the full year Indian gold consumption fell 19%.

Since March, gold sales to India have dropped between 50% and 60% year-on-year, with analysts forecasting Indian demand to fall between 20% and 30% over the full year.

However, traders should be aware that a downturn in Indian consumption is a purely cyclical phenomenon. In 2010, for example, when the Indian economy made a comeback, gold consumption soared 74% to a record high of 1,006 tonnes, according to GFMS estimates. And a similar rebound, later this year or in 2013, could be back on the cards.

Whilst we are still bullish on gold in the long-term, what’s our short-term outlook?

In the short-term The Gold & Silver Club is focused on potential sell short opportunities with both Gold and Silver. If we break the important support levels – $26 on Silver and $1525 on Gold, the momentum is likely to continue downward in the short-term.

If Silver breaks $26.00, we expect a big sell off with the price rapidly dropping to $25.00, $24.00, $23.00 or lower fast. In which case traders should be prepared with two things: one, the right trading strategy to profit from the downside momentum and two: a precise market data tool such as MetaStock’s QuoteCenter to give you the right information at the right time to make the right trading decision.

On the flipside, if the market continues to bounce and rally off the $26.00 support level this potentially could be a very profitable trade to the upside. This key level has not been breached in the last 12 months so is the pivotal level to watch.

Looking at gold – if we continue to bounce off and rally from the $1525 to $1535 support level then expect a great trade toward the upside. Again this key level has not been breached in the last 12 months so is the pivotal level to watch. On the reverse side, if gold breaks through $1525 prepare yourself for a major sell off with the potential of gold price hitting lows of $1500, $1485, $1450 or lower fast.

On both occasions be aware – The more times we test a support level, the likely it is to break. To sum things up, the outlook for gold and silver remains bullish for the medium and long term but is rather bearish for the short term. If you would like to receive free weekly Gold & Silver trading updates then sign up to The Gold & Silver Clubs newsletter at www.thegoldandsilverclub.com.

About Nik Kalsi and Phil Carr

Nik Kalsi and Phil Carr are recognised as leading authorities on gold and silver trading. They are the founders of thegoldandsilverclub.com and professional commodity traders.

Nik Kalsi

Nik has extensive knowledge of the financial markets and investment strategy. Prior to founding The Gold & Silver Club, he spent 5 years coaching professional fund managers and traders internationally for some of the world’s top tier hedge funds and investment banks. Through his journey across the world’s leading trade floors, Nik formed first hand relationships with successful traders – discovering the strategies, mindset and tools giving professional traders the definitive edge in any economy. Nik has written many articles on monetary economics. He is also a regular columnist for a number of financial publications and appears frequently on television.

Phil Carr

Phil is the co-founder and director of The Gold & Silver Club. He specialises in teaching people how to make money from trading one of the biggest financial markets in the world: Gold, Silver & Oil and has trained hundreds of individuals to become independent traders and successfully manage their own investment portfolio.

He has personally developed The Gold & Silver Club’s trademark investment strategies that have a proven track record of generating returns for traders.

Phil speaks at numerous trading seminars and workshops across the world sharing his expert knowledge with investors who have a passion and interest in trading Gold, Silver & Oil.

Support Tip: MetaStock Monitor JULY-AUGUST 12

How do I create an expert adviser for an optimized system test?
Contributed by MetaStock Support

Some of the System Tests look for optimized values based off of the data set and security you are testing. Optimization values can change with each new data point coming into the chart, so the optimization values can constantly change. Since optimization values are ever changing, it would be impossible to create an Exploration\Expert including all the different optimization values. This is why there are not matching Explorations and Experts for each System Test.

Below are instructions to create an Expert Advisor that uses optimization values found in the System Tester. The same steps can be used for non-optimized System Tests, you will simply not need to replace OPT1, etc with a value.
To create an Expert from an Optimized test:

1) First, you need to run the System Tester to get the optimization value. Open the System Tester.


2) After opening the System Tester, choose the formula you wish to create an Expert Advisor for. For this example, we selected "Equis - Bollinger Bands". Click the "Edit" button. Once the information appears, click the "Buy Order" tab, highlight the formula and copy it.


To create an Expert Advisor symbol (based off a Buy Order):

3) Close the System Tester and open the Expert Advisor.


4) After opening the Expert Advisor, select the "New" button. Then name your expert and add any helpful notes in the notes area.


5) Go to the "Symbols" tab and select "New". Paste the copied formula from the System Tester in the "Condition" area and give the symbol a name. Anywhere in the formula that opt1 is listed, insert the optimization value found in the System Tester.


6) After naming the symbol and pasting the formula on the "Name" tab, click on the "Graphic" tab and assign a graphic for your Expert Symbol.


7) After saving your new Expert Advisor, you will see it listed.


8) Here is a screen shot of the Expert Advisor we created generating a signal.



To create an Expert Advisor alert (based off a Buy Order):
(Use steps one and two from "To create an Expert from an Optimized test")

3) After opening the Expert Advisor, click the "New" button. Create a name for your new Expert Alert and add any notes you feel necessary in the space provided. Once you have completed these steps, click on the "Alerts" tab.


4) Select "New" once you have clicked on the "Alerts" tab. Name the Alert and copy and paste the formula taken from the System Tester in the "Condition" area. Anywhere in the formula that opt1 is listed, insert the optimization value found in the System Tester.


5) Click on the "Alert" tab. This will allow you to specify how you would like to be notified when a signal is generated.

6) You can see your Expert Advisor listed with the rest of the Expert Advisors once you set your Alert method.


To create an Expert Advisor symbol (based off a Sell Order):

You will need to close the Expert Advisor window and re-open the System Tester. Highlight and Edit the System Test. Go to the "Sell Order" tab and copy the formula. Repeat all of the same steps, making sure you name them "sell".

Power User Tip: MetaStock Monitor JULY-AUGUST 12

The Importance of Managing Your Money
Contributed by Breakaway Training Solutions

How important is money management when trading? The short answer is that this can make or break your trading account! No one should ever place a trade without a solid money management plan in place. To help explain this extremely important topic, please watch this review and tutorial of the JBL Risk Manager.

http://www.youtube.com/watch?v=zr6vV2x18Vs

For more MetaStock training, make sure to visit Breakaway Training Solutions at www.learnmetastock.com or email Breakaway Training Solutions at admin@learnmetastock.com.

About Kevin Nelson

Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

©Breakaway Training Solutions, Inc. 2012

Indicator Studies "Price Rate of Change"


MetaStock SPRS Series - Week 77 - TechniTrader® Stock Discussion for MetaStock Users - Indicator Studies "Price Rate of Change" - July 16, 2012
By: Martha Stokes C.M.T.

MetaStock Charting software boasts the largest library of indicators available. This allows you to customize your trading platform and trading style to suit you precisely.

When I visit the NYSE floor, one of the first things I do is go around and study the numerous monitors of the floor traders, specialists, and market makers. What I find is each is totally unique. No two are exactly the same, and therein is the secret of the professionals’ success.

Retail Traders all want to trade the same way, they rush to seminars and webinars and then all try to use the new tool that is taught at that training. The reason retail traders are not a fraction as successful as the pros is more about the tools they use, the strategies they use, and the attitude toward trading than anything else.

Pros get emotional, speculative, and greedy too. Pros make bad choices from time to time but what pros have that you do not have, is a complete process, trading plan that encompasses ALL aspects of the trade, and a unique personally customized trading platform.

How do I know this? I have talked to tens of thousands of retail traders over the years and the repetition of these same mistakes over and over is what I find.

The question is: are you doing this for fun, as a recreational pursuit, a hobby, OR are you really serious about making money trading stocks? My method of teaching is not for everyone, and I am not for the hobbyist or recreational trader. I work with only those who are truly serious about trading stocks successfully.

One thing you MUST do as a serious trader is to dump the junk and get down to the basics. Yes, the basics. One basic is setting up your tools to suit you, NOT what is popular.

Today I am starting a series on Price Oscillators to show you just how diverse this category of indicators is, and how useful this indicator category can be for you.

I want each and every one of you to try these, and then decide if it is right for how you trade.

Most of you use MACD and stochastic, and sometimes you are using these together which makes no sense at all. When these are used together, it tells me that you don’t really understand how to use these indicators properly.

We will cover those indicators later, because today is about “PRICE RATE OF CHANGE.”

This is a wonderful indicator that I really think has a place in some trader’s tools.

Here is how it works:

Price Rate of Change is a CENTER LINE oscillator. It is NOT tracking overbought / oversold conditions but is tracking how price is changing over time. This is NOT the same as Average True Range, which is NOT a trend indicator but a price variance indicator.

What is the difference between a price variance aka volatility indicator, and a rate of change indicator? There is a huge difference.

The chart below shows you just how different the two indicators are. Price Rate of Change is the one with red arrows in the middle chart window, and ATR is below that in the bottom chart window. You can quickly see that for intraday, day trading, and swing trading Price Rate of Change is providing far more information, patterns, and exposing much more critical data than ATR. ATR has a place and is a great indicator for specific analysis tasks. PRC is great for comparing price fluctuations over time. ATR exposes price variance day to day. These are two totally different aspects of price analysis.


Chart 1

Price rate of change is able to expose a sideways action developing, even before the eye can see it on the candlesticks. ATR is not designed to expose sideways developing patterns, only the day to day variance when using daily candles.

Price Rate of Change also exposes sudden rates of change in price, as the stock starts to create a risk of a top. ATR exposes some price variance and volatility, but is not warning that the rate that price is changing over time has become more inconsistent.

The chart is of TJX. We can follow the progress of this stock over time. What PRCE is exposing at this time is the fact that this stock is getting more speculative trading activity, including more High Frequency Trader activity. HFT activity often precedes the earliest stages of a top. Earliest stages means weeks not tomorrow folks. Some of you assume I am talking about immediate action.

The goal of using tools is to not only find great stock picks, but also to help you avoid bad picks AND to help you see what is going to occur down the road. If a stock is posturing for topping action then it is something to consider for a sell short watchlist. If a stock is bottoming, then it is worth putting on a swing style watchlist for sudden velocity moves out of that bottom.

Watchlists are an entirely different topic that I will also cover at a later date.

Put PRC on a chart and test it, study it to see how it can expose divergences in price not easily seen in the candlesticks.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner

©2012 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

Monday, July 9, 2012

Volume Rate of Change

MetaStock SPRS Series - Week 76 - TechniTrader® Stock Discussion for MetaStock Users - Volume Rate of Change - July 9, 2012
By: Martha Stokes C.M.T.


I teach volume indicators frequently because most traders emphasize price and time indicators, and neglect volume and time indicators.

In the modern electronic automated stock market, neglecting to pay close attention to volume as well as price is one of the primary reasons most retail traders have lackluster profits and whipsaw trades.

An easy to use volume indicator I would like to introduce to you today is Volume Rate of Change.

Volume Rate of Change can be classified with Velocity types of indicators. Like Average True Range which reveals price variance also called volatility, Volume Rate of Change exposes the variances of volume over time.

Since this indicator can be adjusted to various time periods for different trading styles, it is extremely useful in as a general “volatility” or velocity indicator for volume.

High Frequency Traders move price and volume suddenly and hugely. Their activity often prompts other market participant groups to jump in and trade the stock as well.

Day Traders: Identifying sudden volume volatility is important to tracking the High Frequency Trading Firms, which is where the bulk of the day trading profits occur nowadays.

Swing Traders: Often the first sign of a momentum move is a surge of volume. Volume Rate of Change can reveal underlying volume activity during a consolidation especially during bottoms, when price often doesn’t show extreme low volatility patterns in ATR.

Position Traders: Volume Rate of Change can help you see spikes of volume during a platform, which can assist you in determining what direction price will breakout.


Chart 1

Volume at Price is shown above in the bottom chart window. It is a simple line indicator that I frequently use on Volume bars. It is especially useful during consolidations and platforms when price is holding steady and price trend and volatility indicators such as ATR are functioning ideally.

Surges of volume in this pattern expose the strength of the upside even during the platform phases for this stock. This is a position style trade that continued moving up because volume was favoring the upside.

During volatile price action Volume Rate of Change can expose extreme patterns, which warn that the run is exhausting for better exits on swing trades.

Volume Rate of Change should be adjusted for settings that work for your individual trading style. Experiment with the settings to achieve a sensitivity that exposes volume surges appropriately. The setting above is a 12 period setting which is useful for swing and position trading. Day traders will want to use different settings depending upon their type of day trading.

Using all of the wonderful tools in MetaStock will help you make your trading easier, faster, more consistent, and much more enjoyable. Try VROC to see how it can improve your analysis of volume. It is easy to interpret and use with other volume indicators. It can be set separately as I have in its own chart window or applied with another volume indicator in the same window.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner

©2012 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

Monday, July 2, 2012

Price Oscillators

MetaStock SPRS Series - Week 75 - TechniTrader® Stock Discussion for MetaStock Users - Price Oscillators - July 2, 2012
By: Martha Stokes C.M.T.


Hi Everyone,

In my last webinar I talked about all the different MetaStock indicators available.

The most common indicator that many of you consider is a price oscillator. But price oscillators are not all the same. There are as many kinds of price oscillators as there are price patterns.

There are many price oscillators and many formulas to consider.

1. Momentum price patterns
2. Overbought and oversold price patterns
3. Relational price action
4. Range bound price action
5. Breakout compression price patterns

Stochastic as an example is comparing prior end of day close, to current end of day close to determine whether a stock is closing lower and lower on each day as it moves up. George Lane believed that this was a good way to determine that buyers were fading, which would mean the stock was “overbought” and ready to cycle down again. Lane’s work focused on the trading range or sideways patterns. Lane used an 80% high range and a 20% low range to quantify the overbought and oversold conditions.

Price Rate of Change is a momentum oscillator that measures price from one period to another period of time. PRC aka Rate Of Change ROC measures the difference between the current price and the price X number of days ago, to expose momentum energy in a stock’s current or recent price action.

%B is a relatively new indicator from John Bollinger CMT, who wrote the magnificent Bollinger Bands. %B is a relational oscillator based on the high and low levels of the Bollinger Bands.

There is also Wilder’s Relative Strength Index which is not an index at all, but compares price relationships in a unique way. It compares the current price to the price X periods ago within a 70% high and 30% low range.

Williams %R is a variation of RSI so it is not worth much. Always use the original primary indicator, not some mildly modified version of that indicator.

What this means to you as a trader is that you need to first understand what the indicator writer was intending to have the price oscillator REVEAL, how it works, what market conditions are best suited for that indicator, and what SETTING you should use for your personal trading style.

Day traders will use different settings than a momentum or velocity trader, swing traders will have slightly longer settings than a momentum trader, and position traders will use periods that are longer than what swing traders use.

When you go to choose a price oscillator or ANY indicator for your trading, don’t just rush to use what is taught in a webinar or what you hear other traders use, instead first consider the proper application for that indicator.

As an example, a momentum indicator should be used during velocity and moderately trending markets. It should not be used in a trading range or sideways market.

Platforms should use RSI which is better at revealing the compression of price before a breakout.

%B is perfect for those who use Bollinger Bands but also need a price oscillator that tracks sudden momentum action after quiet price action.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner

©2012 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.