Video: Using the SwingTracker Trending
May 30, 2009
Here is a new video lesson….
It’s about using the ‘SwingTracker Trending’ overlay to help you identify trends. I talk about using it on different time-frames and
I also go into more info about using it with another indicator and overlay in SwingTracker.
Go through to watch the video:
Remember, you can try SwingTracker out for a complimentary 30-day trial! For a complete rundown of all the features or to get started with your trial go here:
Good trading,
Shane Hurren
MrSwing Senior Swing Trader
support023@mrswing.com
+1 (360) 566-2281
Force Index
December 28, 2008
Definition:
The ForceIndex indicator relates price to volume by multiplying net change and volume.
Formula:
ForceIndex = Volume(today) * (Close(this period) - Close(last period))
ForceIndex is typically presented as two smoothed averages (slow and fast) to reduce the likelihood of false signals.
Interpretation:
ForceIndex is used by some investors as a running total of where money is flowing. Because this indicator multiplies price movement in a period by the volume of that period, the value of ForceIndex will change the most when net change is accompanied by higher relative volume. Investor can use this index to both (a) compare current price movements to past ones and (b) evaluate the current trend.
The periods used are a moving average of the ForceIndex values, which reduces choppiness. Generally, investors use periods which match the length of the trends in which they are studying. The longer-average will be the intermediate or longer-term trend and the shorter-average will be a shorter-term trend. Some conventional interpretations follow:
One interpretation is to look for a confirmation or divergence between ForceIndex and the price. When ForceIndex moves up with price increases or down with price decreases, it can indicate that the current trend is has momentum. When ForceIndex diverges from price, it can indicate that the trend may change.
Another interpretation is to receive signals based on a crossover of the two lines. When the slow line crosses above the slow line and they are both increasing, it can be considered a confirmation of an uptrend. Conversely, when the fast line crosses below the slow line and they are both decreasing, it can be seen as confirmation of a downtrend. When a crossover occurs when the lines are going in opposite directions, it can indicate a trend reversal.
Some traders seek to eliminate some false signals by using only the signals which correspond to the direction of the intermediate to long term trends.
Filtered Wave
December 28, 2008
Definition:
Filtered Wave automatically draws lines between the top and bottom of a price movement that is at least 10%. This percentage can be changed in SwingTracker by clicking “Utilities” >> “Parameters” and selecting “Filtered Wave” in the resulting pop-up window.
Interpretation:
The Filtered Wave does not have any predictive value in it of itself. However, it is useful in studying the degree of retracements during major price movements and can be used alongside other types of indicators (such as Elliot Wave analysis or Fibonacci Retracements).
Envelope - Envelopes
December 28, 2008
Definition:
The envelope study is a derivation of the moving average study. The parameters used to compute the study are:
• The period, the number of bars used to calculate the moving average, basis the close
• Percent, a percentage deviation from the moving average
Formula:
Top Band = * ((100+P)/100)
Bottom Band = MA * ((100-P)/100)
MA = Moving Average basis the close
P = percentage offset
Interpretation:
This indicator needs to be tuned to each individual market, beginning with a Moving Average that needs to be applied to smooth the volatility of the market. The percentage offset then needs to be ascertained so that the bands envelope the previous or recent trading activity. Half the average daily range or a little above is a good starting point, using a daily bar chart.
The theory is that when the market is stretched to an extreme price, relative to recent activity, it’s either trending or about to change direction. In general, the market spends most of the time not trending. It varies from market to market, but as a rule of thumb (basis a half hour chart) markets trend for only about 20% of the time. The rest of the time, about 80% of the time, is spent oscillating within a trading range.
If the market is trending, then it should be obvious or we can use another trend type indicator, like the ADX, to determine this state. If it\’s not trending then we can assume that as price approaches the top band it will attract sellers and as it approaches the bottom band it will be advertising to buyers. In simple terms we can say that there is a buying opportunity at the lower band and a selling opportunity at the higher band.
On the other hand, if it is determined that the market is trending or in a position to start a new trend, then price moving outside the envelope is actually a signal to go with the market.
Elder Ray
December 28, 2008
Definition:
The Elder Ray Indicator is a measure of bullish and bearish “power” and is a rather simple calculation of comparing the daily high and low to an exponential moving average.
Formula:
Bull Power = Daily High - n-period EMA
Bear Power = Daily Low - n-period EMA
Interpretation:
There are many possible interpretations of the Elder Ray Indicator since it is a simple way of comparing daily range to a smoothed average.
One common interpretation is to view it as bullish when (a) bear power is below zero but rising and (b) the previous bull power peak is higher than the previous peak.
Conversely, it can be considered bearish when (a) bull power is above zero but falling and (b) the previous bear power trough is lower than the previous trough.
DMI - Directional Moving Index
December 28, 2008
Definition:
The Directional Movement Index (DMI) is a trend-following indicator developed by J. Welles Wilder, Jr., designed to determine whether a security is in a trending or non-trending market. Since the market is in a strong trend only about 30% of the time and in sideways about 70% of the time, this indicator is used to capture the period when the market shows significant trending or directional behavior.
The calculation of the DMI is fairly complex, and consists of three lines:
- +DI: current positive directional index, the range of highs divided by the price range over the last day and previous close, smoothed over a given number of periods.
- -DI: current negative directional index, the range of lows divided by the price range over the last day and previous close, smoothed over a given number of periods.
- ADX: modified moving average of the difference of +DI and -DI divided by the sum of +DI and -DI, multiplied by 100.
Interpretation:
When the +DI rises above the -DI, it can be considered a signal for an uptrend. When the +DI crosses below the -DI, it can be considered a signal for a downtrend.
According to conventional interpretation, three criteria should be met for a signal to be considered valid in most circumstances.
- ADX should be rising
- ADX should be above 50
- Confirmation from another indicator is encouraged pointing towards strong trending or volatility characteristics.
A more strict interpretation of the Directional Moving Index calls for a fourth criterion to be met. For an uptrend to be valid, the price of the security must rise above the high of the day that the +DI crossed above the -DI. For a downtrend to be valid, the price of the security must dip below the low of the day that the +DI crossed under the -DI.
Davids Double RSI
December 25, 2008
Definition:
Developed by Andrew Cardwell in the early 1990s, this indicator is a good identifier of short-term divergence in RSI and price, and when combined with bar reversals (on long trades, when high is greater than low, and on short trades when low is greater than high).
Interpretation:
David B use it to identify Fibonacci patterns that have hit and bounced off of a key level, and is ready to run in a given direction to a new price resistance or to a new Fibonacci target.
The indicator can also be used to identify key divergences in price in 21-period or fewer timeframes. Typically those divergences also end in Fibonacci pattern.
Darvas Box
December 25, 2008
Definition:
The Darvas Box is considered by some to be a trading system wrapped up into a single indicator. The indicator uses a series of “states” to determine the upper and lower lines of a box by finding highs and lows.
Formula:
The calculation of a Darvas box is complex and is based on a series of states, and a box is not formed until all states have been met.
Essentially, the Darvas Box requires the successful “finding” of a high and low over a set of three periods for each. Bar charts or candlestick charts are required because the high and low of a period is needed for the calculation.
State 1 can start with any bar, and establishes the high (or BoxTop, which is simply a horizontal line crossing the high).
A bar moves to State 2 when the period’s high is lower than the State 1 period, otherwise it remains in State 1 and forms a new BoxTop.
A bar moves to State 3 when the period’s high is lower than the State 2 period, otherwise it returns to State 1 and forms a new BoxTop. In State 3 a BoxBottom is formed, which is simply a horizontal line crossing the low.
A bar moves to State 4 when the period’s low is higher than the State 3 period, otherwise it remains in State 3 and forms a new BoxBottom. (If the period’s high is higher than the BoxTop, form a new BoxTop and return to State 1.)
A bar moves to State 5 when the period’s low is higher than the State 4 period, otherwise it returns to State 3 and forms a new BoxBottom. (If the period’s high is higher than the BoxTop, form a new BoxTop and return to State 1.)
Only after State 5 is reached is a box formed on the chart.
Interpretation:
The prevailing interpretation of a Darvas Box is to locate breakouts above established highst an lows. Some traders consider it bullish when the price breaks above a BoxTop and bearish when it breaks below a BoxBottom.
Some traders also use the Box as a stop-loss by setting it as the BoxBottom in a long position or the BoxTop in a short position (or a percentage above/below the BoxBottom/BoxTop).
Commodity Channel Index
December 25, 2008
Definition:
The value of the Commodity Channel Index (CCI) is not limited to commodities, and was developed by Donald Lambert as a market timing tool, designed to keep trades neutral in a sideways moving market, and identify entry points when a breakout occurs. Specifically, this oscillator measures how high or low prices are relative to their statistical mean. A high value means prices are relatively high and while a low value means the opposite. An oscillator refers to a momentum or rate-of-change indicator that is usually valued from -1 to +1 or 0% to %100.
The CCI is often best-suited for securities with cyclical patterns, with an optimal period being at least less than 1/3 the number of periods of the cycle.
Interpretation:
The Commodity Channel Index can be interpreted in several different ways, and can be incorporated into many different types of trading schemes or philosophies depending on the type of security and the periods being analyzed.
One interpretation is to use CCI as an overbought/oversold oscillator, meaning that when CCI is in its upper ranges, extending beyond +100, CCI is overbought and a price correction is forthcoming. When CCI is well into its lower ranges, extending below -100, a price rally is approaching.
A second interpretation is that when the CCI breaks into triple digits it will continue a trend.
- When the CCI rises above +100, it is a bullish signal.
- When the CCI dips below -100, it is a bearish signal.
Critics of the indicator say that CCI often misses the early part of the price movement. To overcome this, some traders use signals when the CCI crosses the zero.
- When CCI crosses zero from negative to positive, it is potentially a bullish signal.
- When CCI crosses zero from positive to negative, it is potentially a bearish signal.
A third interpretation is to integrate the two views, and look for divergences as the distinguishing factor. For instance, if the price is breaking new highs, as the CCI is not, the security is potentially oversold, whereas is both are reaching new highs, then an uptrend will possibly ensure. The reverse conditions can hold true when the price reaches new lows over a given period.
Breadth Advance/Decline
December 25, 2008
Definition:
The Breadth Advance/Decline is a market breadth indicator developed by Martin Zweig. It is an indicator designed to track the momentum of the broader market and anticipate large upswings or downswings in price. This is based on the concept that the number of advancing securities accompanying a market rise is positively correlated with the probability for further advances. Likewise, the number of declining issues pushing the market downward can be correlated with the probability for further declines. The Breadth Advance/Decline is calculated by taking the 10 day simple moving average of the number of advancing issues and dividing that number by the sum of the total amount of advancing issues and the total amount of declining issues on the New York Stock Exchange. The neutral point of the Breadth Advance/Decline indicator is .500 in a range of zero to one.
Interpretation:
There are several common modes of interpretation for Breadth Advance/Decline.
One type of interpretation involves extremely bullish or bearish behavior. When the Breadth Advance/Decline goes above .66, it can be considered very bullish conditions. If it falls below, .37, it can be considered very bearish conditions. Other indicators can verify whether these conditions warrant an overbought/oversold market or whether the market will continue in its current trend.
A second type of interpretation involves the rapidity of a rise or decline in the indicator. A rapid decline (defined as approximately .2 with 10 days) can indicate that the market has shifted from a simply overbought market to one of true weakness, potentially forecasting a prolonged bear market. A steep increase (defined as approximately .2 within 10 days) can indicate that the market has shifted from an oversold market to one of robust strength, potentially forecasting an extended period of strong growth. Remember, the Breadth Advance/Decline studies the entirety of the NYSE, and not individual stocks.
A final type of interpretation involves a crossover of the neutral line.
When the indicator goes from negative to positive (crosses above .500) a bullish climate can be interpreted for the market, and confirmed by other indicators for individual stocks or industries.
When the indicator goes from positive to negative (crosses above .500) a bearish signal can be interpreted for the market, and confirmed by other indicators for individual stocks or industries.
