{"id":41805,"date":"2011-12-16T14:48:00","date_gmt":"2011-12-16T09:18:00","guid":{"rendered":"index.php\/2011\/12\/16\/technical-analysis-of-the-financial-markets-ch-10\/"},"modified":"2011-12-16T14:48:00","modified_gmt":"2011-12-16T09:18:00","slug":"technical-analysis-of-the-financial-markets-ch-10","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2011\/12\/16\/technical-analysis-of-the-financial-markets-ch-10\/","title":{"rendered":"Technical Analysis of the Financial Markets: Ch 10"},"content":{"rendered":"
\"Cover<\/a> <\/p>\n

Cover via Amazon<\/a><\/p>\n<\/div>\n

This is a review of the 10th chapter of John J. Murphy\u2019s Technical Analysis of the Financial Markets.<\/em><\/p>\n

Oscillators<\/h3>\n

Oscillators are extremely useful in non-trending markets and can be used to detect short-term market extremes in trending markets as well. They are most useful when:<\/p>\n

    \n
  1. Their values reach an extreme reading\n
  2. There is divergence between the price action and the oscillator at the extremes\n
  3. There is a zero\/midpoint crossing<\/li>\n<\/ol>\n

    Commodity Channel Index<\/h4>\n

    The CCI<\/a> is an index constructed out of comparing the current price with a 20 day average and normalizing it based on mean deviation. The CCI usually falls in a channel of -100 to 100. A basic CCI trading system is: Buy if CCI rises above 100 and sell when it falls below 100. Sell if CCI falls below -100 and buy when it rises above -100.<\/p>\n

    Relative Strength Index<\/h4>\n

    The RSI<\/a> is plotted on a scale of 0 to 100. Movements above 70 are considered overbought and below 30 are considered oversold. When a trend develops, an extreme reading in the RSI is typically observed. However, acting on it might make us exit prematurely. It is important to consider the trend of the RSI<\/em> itself before you act on it.<\/p>\n

    Williams %R<\/h4>\n

    The %R<\/a> compares the latest close to the price range over a period of days. It is used in the same fashion as other indicators to identify overbought and oversold conditions.<\/p>\n

    Moving Average Convergence\/Divergence (MACD)<\/h4>\n

    The MACD<\/a> combines the oscillator approach with exponential moving averages. The faster line (MACD line) is the difference between EMA12 and EMA26. The slower line (Signal line) is a 9 period exponential smoothed MACD line. <\/p>\n

      \n
    1. A Buy is given when the MACD crosses higher than the Signal line.\n
    2. A Sell is given when MACD crosses lower than the Signal line.\n
    3. A Strong Buy is given when #1 occurs and both the lines are below the zero line.\n
    4. A Strong Sell is given when #2 occurs and both the lines are above the zero line.<\/li>\n<\/ol>\n

      Additionally, you can use the histogram provided in the charts to get an early warning of crossovers; turns in the histogram back towards the zero line always precede crossovers.<\/p>\n

      Up Next: Chapter 12 \u2013 Candlesticks. Also discussed <\/em>here<\/em><\/a>.<\/em> <\/p>\n

      \n
      Related articles<\/h6>\n