XpressCharts^SM: Glossary of Studies

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Average Directional Movement Index (ADX & ADXR)

Developed by J. Welles Wilder, the Average Directional Movement Index (ADX) is an indicator for use with the Directional Movement Index and quantifies the strength and direction of a trend. The ADX consists of three components: the plus Directional Indicator (+DI), the minus Directional Indicator (-DI) and the Average Directional Indicator. The ADX is simply a modified moving average of DX.

To calculate up or down directional movement in a trend, a range is determined by comparing today's high and low with yesterdays close. If the largest part of today's range is above yesterday's range, the directional movement is plus. If the largest part of today's range is below yesterday's range, the directional movement is minus. If today's range is within yesterday's range, then directional movement is defined as zero. The average of the directional movement indicators is the ADX.

Read the ADX like an oscillator. A high positive value would be bullish. A low negative value is interpreted as bearish.

The Average Directional Movement Index Rating (ADXR) is an attempt to quantify momentum change in the ADX. It is calculated by adding the current ADX value and an ADX value n periods back then dividing that sum by two.

This smoothing step results in the ADXR being slightly less responsive than the ADX. Where the ADXR shines is its ability to compensate for the variance of excessive tops and bottoms. It is especially helpful when used in conjunction with trend-following strategies. Strategies that rely on volatility as an indication of movement often fail to take into account movement does not necessarily indicate volatility. ADXR provides information pertaining to the strength of a trend, helping to manage the risk of trading in volatile markets that fluctuate between trending and non-trending. The interpretation of ADXR is the same as that for ADX, the higher the value, the stronger the trend.

Accumulation/Distribution

The Accumulation/Distribution Line was developed by Marc Chaikin to assess the cumulative flow of money into and out of a security. He decided to focus on the price action for a given period (day, week, month) and derived a formula to calculate a value based on the location of the close, relative to the range for the period. This is the "Close Location Value" or CLV. The CLV ranges from plus one to minus one with the center point at zero.

The signals for the Accumulation/Distribution Line are fairly straightforward and involve divergence or confirmation. A bullish signal is given when the Accumulation/Distribution Line forms a positive divergence. Be wary of weak positive divergences that fail to make higher reaction highs. A two-week positive divergence should be suspect. However, a multi-month positive divergence deserves serious attention.

The Accumulation/Distribution Line can also be used to confirm the strength or sustainability behind an advance. In a healthy advance, the Accumulation/Distribution Line should remain up or at least move in an uptrend. If the stock is moving up at a rapid pace, but the Accumulation/Distribution Line has trouble making higher highs or starts going sideways, buying pressure is relatively weak.

The Accumulation/Distribution Line can at time have problems detecting subtle changes in volume flows. The rate of change in a downtrend could be slowing, but it may be impossible to detect until the Accumulation/Distribution Line turns up. This drawback has been addressed in the form of the Chaikin Oscillator or Chaikin Money Flow.

Average True Range (ATR)

Average True Range or ATR is a measurement of volatility. It measures the average of true price ranges over time. The True Range is the greatest distance between today's high to today's low, yesterday's close to today's high, or yesterday's close to today's low. The Average True Range is a moving average of the True Ranges.

High ATR values often occur at market bottoms following a "panic" sell-off. Low Average True Range values are often found during extended sideways movement, like as those found at market tops or after consolidation periods. True Range is used in Welles Wilder's Directional Movement indicator as well as Donald Mart's Master Trading Formula and is a common volatility ratio. The ATR can be used in a channel breakout method of trading by adding or subtracting from the previous bar's close or the current bar's open.

Bollinger Bands

Similar to Moving Average Envelopes, Bollinger Bands are plotted at 2 standard deviations above and below a 20-day exponential moving average. As standard deviation is a measure of volatility, the bands are self-adjusting: widening during volatile markets and contracting during calmer periods.

As a rule, prices are considered to be overextended on the upside ("overbought") when they touch the upper band. They are considered overextended on the downside ("oversold") when they touch the lower band. Using two standard deviations ensures that 95% of the price data will fall between the two trading bands.

The simplest way to use Bollinger Bands is to use the upper and lower bands as price targets. In other words, if prices bounce off the lower band and cross above the 20 day average, then the upper band becomes the upper price target.

A crossing below the 20 day average would identify the lower band as the downside target. In a strong uptrend, prices will usually fluctuate between the upper band and the 20 day average. In that case, a crossing below the 20 day average warns of a trend reversal to the downside.

As Bollinger Bands creator John Bollinger noted - a move that originates at one band tends to go all the way to the other band. This observation is useful when projecting price targets.

Commodity Channel Index (CCI)

The CCI or Commodity Channel Index is a means by which the variation of a security's price is calculated from its statistical mean.

Much like the Average Directional Movement Index, the CCI can help give a valuable measurement of the overall trendiness of a market. The faster the CCI is accelerating, the more strongly the market is trending. While it is perhaps mathematically possible for the CCI to move upward while the market does not, this is unlikely.

Typically oscillating between +100 and -100, a CCI reading above +100 implies an overbought condition (and a pending price correction) while readings below -100 imply an oversold condition (and a pending rally).

Keep in mind that the CCI can provide important information to a trader even when it is not giving entry signals. If a market stays inside the +/-100 range most of the time, it's demonstrating the absence of a trend, so it might be best to avoid that market or use a countertrend trading strategy.

Despite its name, the CCI can be used effectively on any type of security, not just commodities.

Chaikin Oscillator

The Chaikin Oscillator , or Chaikin A/D Oscillator as it is sometimes referred to, stems from the concept behind the Accumulation/Distribution Line. The basic premise of the Chaikin Oscillator (and the A/D Line) is that the degree of buying or selling pressure can be calculated by the location of a close relative to the high and low for the corresponding period. There is buying pressure when a stock closes in the upper half of a period's range and there is selling pressure when a stock closes in the lower half of the period's trading range.

The Chaikin Oscillator is created by subtracting a 10-period exponential moving average of the Accumulation/Distribution Line from a 3-period exponential moving average of the Accumulation/Distribution Line

The Chaikin Oscillator may be an excellent tool for generating buy and sell signals when its action is compared to price movement. However, because the Chaikin Oscillator is an indicator of an indicator, it is prudent to look for confirmation of a positive or negative divergence, say a moving average crossover, before counting this as a signal.

Two bullish signals that can be generated from the Chaikin Oscillator: positive divergences and bullish centerline crossovers. Two bearish signals that can be generated from the Chaikin Oscillator: a negative divergence and a bearish centerline crossover.

Chaikin Volatility

The difference between two moving averages of a volume weighted accumulation-distribution line. By comparing the spread between a contract's high and low prices, it quantifies volatility as a widening of the range between the high and the low price.

One interpretation of these calculations assumes that market tops are frequently accompanied by increased volatility (as investors get nervous and become indecisive) and latter stages of a market bottom are generally accompanied by decreased volatility. Chaikin has written, that an increase in the Volatility Indicator over a relatively short time period indicates that a bottom is near and that a decrease in volatility over a longer time period indicates an approaching top.

Detrended Price Oscillator

The Detrended Price Oscillator ("DPO") attempts to eliminate the trend in prices. Detrended prices allow you to more easily identify cycles and overbought/oversold levels. Long-term cycles are made up of a series of short-term cycles. Analyzing these shorter term components of the long-term cycles can be helpful in identifying major turning points in the longer term cycle. The DPO helps you remove these longer-term cycles from prices.

To calculate the DPO, you specify a time period. Cycles longer than this time period are removed from prices, leaving the shorter-term cycles.

Directional Movement (DMI)

Directional Movement (DMI) helps determine if a security is "trending." Developed by Welles Wilder and explained in his book, New Concepts in Technical Trading Systems , it can be used either as a system on its own or as a filter on a trend-following system.

Two lines are generated in a DMI study, +DI and -DI. The first line measures positive (upward) movement and the second number measures negative (downward) movement. A buy signal is given when the +DI line crosses over the - DI line while a sell signal is generated when the +DI line crosses below the - DI line.

In addition to these crossover rules, Wilder believes one should also follow the extreme point rule. When a crossover occurs, use the extreme price as the reverse point. For a short position, use the high made during the trading interval of the crossover. Reverse a long position using the low made during the trading interval of the crossover.

Ease of Movement

A technical momentum indicator that is used to illustrate the relationship between the rate of an asset's price change and its volume. This indicator attempts to identify the amount of volume required to move prices. Generally a value greater than zero is an indication that the stock is being accumulated (bought) and negative values are used to signal increased selling pressure. A high positive value appears when prices move upward on low volume. Strong negative numbers indicate that price is moving downward on low volume.

A moving average of the indicator can be added to act as a trigger line, which is similar to other indicators like the MACD. Transaction signals can be generated when the indicator crosses over a 9-day moving average, but are generally made when the indicator crosses over the zero line. Traders use the smoothed version of this indicator in an attempt to eliminate false signals

Linear Regression

Analyzes the relationship between two variables, X and Y. For each subject (or experimental unit), you know both X and Y and you want to find the best straight line through the data. In some situations, the slope and/or intercept have a scientific meaning. In other cases, you use the linear regression line as a standard curve to find new values of X from Y, or Y from X. In general, the goal of linear regression is to find the line that best predicts Y from X. Linear regression does this by finding the line that minimizes the sum of the squares of the vertical distances of the points from the line.

Linear Regression Channel

Created by drawing parallel lines above and below the Linear Regression line. Parallel and equidistant lines are drawn two standard deviations above and below a Linear Regression trend line. The distance between the channel lines and the regression line is the greatest distance that any one closing price is from the regression line. Regression Channels contain price movement, the bottom channel line provides support and the top channel line provides resistance. Prices may extend outside of the channel for a short period of time but when prices remain outside the channel for a longer period of time, a reversal in trend may be indicated.

A Linear Regression trend line shows where equilibrium exists but Linear Regression Channels show the range prices can be expected to deviate from a trend line.

MACD Studies

MACD (2-lines) shows the relationship between a 26-day and 12-day Exponential Moving Average with a 9-day Exponential Moving Average (the "signal" or "trigger") line plotted on top to show buy/sell opportunities. The Interactive Chart program allows you to change any or all of these default parameters.

Three popular ways to use the MACD are crossovers, overbought/oversold conditions and divergences.

Crossovers:
The basic MACD trading rule is sell when the MACD falls below its signal line and buy when the MACD rises above it. It is also common to buy/sell when the MACD goes above/below zero.
Overbought/Oversold Conditions:
The MACD is also can be used as an overbought/oversold indicator. If the shorter moving average pulls away dramatically from the longer moving average and the MACD rises it is likely that the security price is overextended and will soon return to more realistic levels.
Divergences:
Expect the end a current trend may be near when the MACD diverges from the price of a security. A bearish divergence occurs when the MACD is making new lows while prices fail to match these lows. Likewise, a bullish divergence occurs when the MACD is making new highs while prices fail to follow suit. Both of these divergences are most significant when they occur at relatively overbought/oversold levels.

Signals from the MACD Indicator can tend to lag behind price movements.

Momentum Studies

Market technicians use momentum to measure the rate of change in price rather than simply absolute price changes. Momentum is calculated by constantly recording price changes over a fixed time period, and changes in the rate of ascent or descent are plotted, either positive or negative relative to a straight line representing time. The position of the timeline is determined by the futures price at the beginning of the momentum study. Traders use this analysis to determine overbought and oversold conditions in the market. When a maximum positive point is attained, the market is said to be overbought, and a downward reaction may be imminent. Conversely, when a maximum negative point is reached, an upward reaction to oversold conditions might be expected.

By measuring the amount that a security's price has changed over a given time span, the Momentum Indicator provides an indication of a market's velocity and to some degree, a measure of the extent to which a trend still holds true. It can also be helpful in spotting likely reversal points.

While the mathematics are straightforward (subtract the closing price n days ago from the closing price today), do not underrate its value because of its simplicity.

Use the Momentum indicator as a trend-following oscillator similar to the MACD and buy when the indicator bottoms and turns up. Sell when the indicator peaks and turns down. When the Momentum indicator reaches extremely high or low values (relative to historical values) assume a continuation of the current trend.

A second usage for the Momentum indicator is as a leading indicator. As a market peaks, the Momentum indicator will climb sharply before falling off. At a market bottom, the plot will drop sharply and then climb well ahead of prices.

Money Flow

The Money Flow indicator illustrates the inflows and outflows of cash in regards to a particular stock. While a stock's price simply provides a snapshot in time, Money Flow can show if the market may be discounting some future, significant event.

The equation for Money Flow calculation is simply:

Money Flow values can be used as an independent measurement or as part of the Money Flow Index equation.

Moving Averages

This technical study shows the futures contract's moving average over a variety of time periods. These average lines respond to each piece of data twice - once when a closing price is factored in, and again when it drops off to be replaced by the latest closing price. This could result in an unreliable buy or sell signal. For example, when a high price is dropped, the moving average will most likely tick down. When the low price is dropped, the moving average might well tick up, even if the price went down that day, but by an amount smaller than the value that was dropped. In order to combat this shortcoming, many chartists prefer to watch the interaction of two moving averages - a shorter-term average combined with a longer-term average - in order to uncover bullish and bearish signals. The interaction between these averages - how they converge and diverge, and how they cross over each other - may provide signals to buy or sell.

The Simple Moving Average is calculated by summing the closing prices of the security for a period of time and then dividing this total by the number of time periods. Sometimes called an arithmetic moving average, the SMA is basically the average stock price over time.

Note that because the Simple Moving Average gives equal weight to each daily price, the longer the time period studied the greater the smoothing out of recent market volatility. Long-term moving averages smooth out all the minor fluctuations showing only longer-term trends. Shorter-term moving averages will show shorter term trends but at the expense of the long term.

Most of the time prices are on one side or the other of the moving average. As trends develop, the moving average will slope in the direction of the trend, showing the trend direction and some indication of its strength based on the steepness of the slope.

The Exponential Moving Average is but one type of a moving average. In a simple moving average, all price data has an equal weight in the computation of the average with the oldest value removed as each new value is added. In the exponential moving average equation the most recent market action is assigned greater importance as the average is calculated. The oldest pricing data in the exponential moving average is however never removed.

A buy signal occurs when the short and intermediate term averages cross from below to above the longer term average. Conversely, a sell signal is issued when the short and intermediate term averages cross from above to below the longer term average. Use longer term averages when trading only two exponential moving averages in a crossover system.

It may be worth noting that a 5-day exponential moving average normally will include more than 5 days worth of data and could include data from the entire life of a futures contract. In fact, these moving averages might be better identified by their actual "smoothing constants," since the number of days of data in the calculation is the same for a so-called 5-day average as for a 10-day average. Exponential calculations can arrive at different moving average values depending on your starting point.

A Moving Average Envelope chart uses the Moving Averages calculated from the underlying price. The results are shifted up and down by a fixed percentage and imposed over the day's price information.

The underlying concept is that overzealous buyers and sellers will drive prices toward the upper or lower band. Look for the price to penetrate the band followed by a small reversal to predict a large change in direction. This is similar to the interpretation of Bollinger Bands.

Negative Volume Index - NVI

An index that focuses on days where the volume has significantly decreased from the previous day’s trading. The index tries to determine what smart investors are doing. It is believed that when volume is high, uninformed investors will sell. While on slow days, "shrewd investors" will quietly buy or sell the stock.

On Balance Volume (OBV) is a momentum indicator that relates volume to price change. Joseph Granville presented the idea that volume will precede price in his 1963 book, New Key to Stock Market Profits.

On Balance Volume keeps a running total of volume flowing into or out of a security. When the security closes higher than the previous close, all of the day's volume is considered up-volume. A close lower than the previous day's results in all of the day's volume considered down-volume. A rising OBV is defined as a sign of smart money flowing into a security. As the public then moves into the security, both the security and the OBV will surge ahead. If price movement precedes OBV movement, Granville calls this a "non-confirmation." Non-confirmations can occur at bull market tops, when the security rises before/without the OBV or at bear market bottoms when the security falls before/without the OBV.

When the security's price closes up, the day's OBV is created by adding the day's volume to the cumulative total. Subtract the day's volume from the cumulative total when the price closes down.

Look for rising trends (when each new peak is higher than the previous peak and each new trough is higher than the previous trough) or falling trends (when each successive peak is lower than the previous peak and each successive trough is lower than the previous trough) to signal a "breakout." OBV breakouts normally precede price breakouts and investors should buy long on OBV upside breakouts and sell short when on OBV downside breakouts. An OBV is moving sideways is in a doubtful trend and implies a hold until the trend changes.

It is the direction of the OBV line (its trend) that is important and not the actual numbers themselves as actual values will differ depending on how far back you are charting.

Parabolic SAR

Developed by Welles Wilder, creator of RSI and DMI, 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.

Price Channel

A continuation pattern that slopes up or down and is bound by an upper and lower trend line. The upper trend line marks resistance and the lower trend line marks support. Price channel with negative slopes (down) are considered bearish and those with positive slopes (up) bullish. For explanatory purposes, a "bullish price channel" will refer to a channel with positive slope and a "bearish price channel" to a channel with negative slope.

Positive Volume Index – PVI

An index that focuses on days where the volume has significantly increased from the previous day's trading. It tries to determine what smart investors are doing. When trading volume is high it is thought that inexperienced investors are involved. Whereas on slow days, "shrewd investors" quietly buy or sell the stock.

Price Rate of Change

The Price Rate of Change is an oscillator that displays the difference between the current price and the price x -time periods ago. As prices increase, the ROC rises and as prices fall, the ROC falls. The greater the change in prices, the greater the change in the ROC.

The 10-day ROC is an excellent short- to intermediate-term overbought/oversold indicator. The higher the ROC, the more overbought the security; when the ROC falls expect a rally. As with all overbought/over-sold indicators, watching for the market to start its correction before placing a trade. Often extremely overbought/oversold readings usually imply a continuation of the current trend and any overbought market may remain that way for some time.

A 10-day ROC tends to oscillate in a fairly regular cycle. Often, price changes can be anticipated by studying past cycles of the ROC and applying the predicted pattern to the current market.

Using only today's open, high, low and close, the Price Action Indicator (PAIN) provides quite a bit of useful information. Using the formula:

where:

(C-O) defines Intra-Day Momentum,
(C-L) defines Late Selling Pressure (LSP) and
(C-H) defines Late Buying Pressure (LBP).

This yields a single value that has proven itself by constructing ideal limit-up and limit-down scenarios in bond futures. The output has also shown to be consistent with the interpretation of Japanese candlestick patterns.

When the Close is near the Low, the stock's price is under selling pressure. If the Close is near the High, the stock's price is under buying pressure, the "Bulls are driving up the price." If the overall market conditions remain favorable, a high PAIN value with the Close near the High will be an excellent potential long.

Price Oscillator

The Price Oscillator indicator shows the variation among two moving averages for the price of a security. Unlike the MACD which always uses 12- and 26-day moving averages and always expresses the difference in points, the Price Oscillator can show the variation between any moving averages and can be shown in either percentages or points.

Moving average analysis typically generates buy signals when a short-term moving average or price rises above a longer-term moving average. Sell signals are generated when a shorter-term moving average or price falls below a longer-term moving average. The Price Oscillator's single line illustrates the cyclical and often profitable signals generated by a two moving average system. Buy when the Price Oscillator rises above zero and sell when the indicator falls below zero.

Relative Strength Index (RSI)

The Relative Strength Index (RSI) is an oscillator first introduced in 1978 by Welles Wilder in Commodities (now Futures) Magazine. The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses on a scale from 0 to 100.

When using the RSI as an overbought/oversold indicator, Wilder recommended using levels of 70 or more as overbought and 30 and and below as oversold. Generally, if the RSI rises above 30 it is considered bullish for the underlying stock. Conversely, if the RSI falls below 70, it is a bearish signal.

Another method of analyzing the RSI is to look for a divergence. If the security is making a new highs and yet the RSI fails to surpass its previous high, this is an indication of an impending reversal. When the RSI then turns down and falls below its most recent trough, it is said to have completed a "failure swing." This serves as a confirmation of the impending reversal.

While the RSI is calculated using a fairly simple formula, it may be wise to refer to Wilder's New Concepts in Technical Trading for a more complete discussion. The basic formula for the RSI is:

Where:

U=An average of upward price change
D=An average of downward price change

Stochastics

The Stochastic Oscillator compares the closing price of a security to its price range over a given time period. Its displayed by two lines, a main line called %K (drawn in solid blue) and a secondary line (in dotted green) called %D. The %D line is the moving average of the %K.

The Stochastic Oscillator contains four variables:

· %K Periods: This is the number of time periods used in the stochastic calculation.

· %K Slowing Periods: This value controls the internal smoothing of %K. A value of 1 is considered a fast stochastic while a value of 3 is considered a slow stochastic.

· %D Periods: This is the number of time periods used when calculating the moving average of %K.

· %D Method: The method (Exponential, Simple, Time Series, Triangular, Variable, or Weighted) used to calculate %D

When trading using the Stochastic Oscillator, one method is to buy when either %K or %D falls below 20 and then rises back above that level. Similarlily, sell when the either line rises above 80 and then falls back below. Another pattern to look for when timing trades is buy when the %K line rises above the %D line or sell when the %K line falls below the %D line. Lastly, one should always be on the lookout for diveregnces. For example, if prices are making a series of new highs and the Stochastic Oscillator fails to surpass its previous highs, the indicator typically will provide the clue as to where prices will soon head.

The Fast Stochastic is the average of the last three %K and a Slow Stochastic is a three day average of the Fast Stochastic. Use as a buy/sell signal generator, buying when fast moves above slow and selling when fast moves below slow. Most traders use the Slow Stochastics because of its more reliable signals.

The Slow Stochastic charts the daily stochastic as well as a five-day moving average of a 12-day interval. This smoothing of the Stochastic Oscillator is an attempt to reduce volatility and improve signal accuracy.

As with the other stochastic indicators, the signals to look for are oversold securities with values are less than 20 and overbought when greater than 80.

Stochastics work best in broad trading ranges, or in a mild trend with a slight upward or downward bias. The worst market for normal use of stochastics is a persistent trending market that has only minor corrections. It is possible to trade stochastics in a trend by ignoring the usual overbought and oversold levels and entering the market when the end of a reaction against the trend is signaled by a stochastic crossover from any level.

Three ways to interpret the Stochastic Oscillator:

Buy when the Oscillator (either %K or %D) falls below 20 and then rises back above that level. Sell when the Oscillator rises above 80 and then falls below that level.

Buy when the %K line rises above the %D line and sell when the %K line falls below the %D line.

Look for divergences - prices making a series of new highs as the Stochastic Oscillator is failing to surpass its previous highs.

Time Series Forecast

Displays the statistical trend of a security's price over a specified time period. The trend is based on linear regression analysis. Rather than plotting a straight linear regression trend line, the Time Series Forecast plots the last point of multiple linear regression trend lines. The resulting Time Series Forecast indicator is sometimes referred to as the "moving linear regression" indicator or the "regression oscillator."

Ultimate Oscillator

Developed by Larry Williams, the Ultimate Oscillator combines a stock's price action during three different time frames into one bounded oscillator. The three time frames represent short, intermediate, and long term market cycles (7, 14, & 28-period). Note that these time periods all overlap, the 28-period time frame includes both the 14-period time frame and the 7-period time frame. This means that the action of the shortest time frame is included in the calculation three times and has a magnified impact on the results.

It is expressed as a single line plotted on a vertical range valued between 0 and 100, with oversold territory below 30 and overbought territory above 70.

Trading should take place when there is a divergence between price and the Ultimate Oscillator. When the price reaches a new low and is not supported by a new low of the Ultimate Oscillator, a bullish signal is generated, provided the Oscillator falls below thirty during this divergence and the Oscillator then rises above its high during the divergence. According to Williams the subsequent uptrend can be ended should the value of the Ultimate Oscillator rise above seventy or rise above fifty and then fall below forty-five. When the price reaches a new high and is not supported by a new high of the Ultimate Oscillator, a bearish signal is generated, provided that the Oscillator rises above fifty during this divergence and the Oscillator then falls to a new low during the divergence. The subsequent downtrend can be ended should the value of the Ultimate Oscillator rise above sixty-five or fall below thirty.

Volume Accumulation

Created by Mark Chaikin, the Volume Accumulation Oscillator shows the cumulative volume adjusted by the difference between the close and the midpoint of the day's range. Compared to the On Balance Volume (OBV) indicator which assigns all the day's volume to the buyers if a security closes up or to the sellers if it closes down, Volume Accumulation uses the relationship of the closing price to the mean price to assign a proportion to the volume.

Use the Volume Accumulation Oscillator as you would the OBV and let volume confirm a trend. A rising price trend will be confirmed by a rising VA line. An uptrend paired with a rising Volume Accumulation line is considered bullish while a Volume Accumulation line that diverges from the price direction of movement should warn of a near-term price correction.

The formula for Chaikin's Volume Accumulation is:
VAC = Volume (Close - High + Low / 2 )

Volume by Price

An indicator that combines both price and volume. The volume of trades is plotted onto the chart horizontally at price intervals. Volume by Price can be used see which prices invoke the most volume and activity. This is useful in determining where the majority of historical trading volume occurred and help find meaningful support and resistance lines. Volume by Price can also help in picking price changes or reversals. A price change is usually associated with large volume so if the current price is hovering around a level of high volume expect a price direction change. Likewise, low volume can be associated with times of uncertainty or consolidation.

Volume Studies

Simply put, Volume is the number of shares or contracts traded during any given period, usually hour, day, week, or month. It is the basic yet important analysis of volume that provides investors with an element of technical analysis. Volume can provide valuable clues as to the intensity of a given price move.

During consolidation periods low volume levels generally prevail. This is symptomatic of the indecisive expectations that typically occur during consolidation periods, times when prices move sideways within a fairly narrow trading range. Low volumes also often occur during market bottoms, another period of indecision.

High volume is characteristic of market tops when a consensus forms believing that prices will move higher. High volume is also very common at the start of new trends (i.e., when prices emerge from of a trading range). Just prior to market bottoms, volume will often increase due to panic-driven selling.

Volume can help determine the health of an existing trend. A healthy up-trend should have higher volume on the upward motion of the trend, and lower volume on the way down. A healthy downtrend usually has higher volume on the downward legs of the trend and lower volume on the upward (corrective) legs.

Volume+

Volume+ represents the volume of advancing issues. Use this measument to quantify the total volume of stocks that at the end of the day closed higher than their previous closing price.

Volume+ is generally viewed as an indication of buying pressure. When advancing volume expands it is generally viewed as bullish.

The Volume Oscillator uses the difference between two moving averages of volume to determine if the overall volume trend is increasing or decreasing.

When the Volume Oscillator rises above zero the shorter-term volume moving average has risen above the longer-term volume moving average. This means that the short-term volume trend is higher (i.e., more volume) than the longer-term volume trend. Bullish signals stem from rising prices coupled with increased volume, and falling prices coupled with decreased volume. Alternatively, if volume increases as prices fall, or volume decreases as prices rise, the market is thought to be showing signs of underlying weakness.

The logic behind this strategy is that rising prices coupled with increased volume signifies more buyers which should lead to a continued move. Similarly, falling prices coupled with increased volume (more sellers) should mean fewer buyers.

Volume ROC (Rate of Change) is mathmatically identical to Price ROC only it displays the ROC of the security's volume rather than of its closing price.

The Volume ROC shows the speed at which volume is changing. This can be quite informative as almost every significant chart formation (tops, bottoms, breakouts, etc.) is accompanied by a sharp increase in volume.

The Volume ROC indicator is calculated by dividing the amount that volume has changed over the last n periods by the volume n periods ago. The result is the percentage that the volume has changed in the last n periods. When the volume is higher today than it was n periods ago, a positive number will result. If the volume is lower today than it was n periods ago, the ROC will be negative.

Wilder's Volatility

Wilders Volatility Index is intended to measure true range over time and is sometimes referred to as Average True Range. It is the greatest difference between:

This period's High and Low
The previous period's Close and this period's High
The previous period's Close and this period's Low

The discussions on Volatility (Chaikin's), Option Volatility, and Standard Deviation explain the interpretation of other volatility indicators.

Williams' Accumulation/Distribution

Developed by Larry Williams, the Williams' Accumulation/ Distribution indicator aims to reflect whether the market is controlled by buyers (accumulation) or by sellers (distribution).

Prices making a new low along with the A/D indicator failing to reach a new low suggests that accumulation is taking place and creates a buy signal. Prices making a new high and the indicator failing to make new highs suggests distribution is taking place and creates a sell signal.

Williams %R

Williams %R is a momentum indicator that is designed to identify overbought and oversold areas in a nontrending market. Williams %R was developed by Larry Williams.

The Williams %R is interpreted similarly to the Stochastic Oscillator only plotted upside-down. It also lacks the internal smoothing found in the Stochastic Oscillator. Readings in the range of -80 to -100% indicate that the security is oversold while readings in the 0 to -20% range suggest that it is overbought.

As with all overbought/oversold indicators, it is best to wait for the security's price to change direction before making any trades. It is not unusual for overbought/oversold indicators to remain in that condition for a long time as the security's price continues to climb/fall. Selling on the first indication of an overbought signal may reduce yields as it could be some time before the price shows signs of deterioration.

An interesting phenomena of the Williams %R indicator is its ability to anticipate a reversal in the underlying security's price. The indicator almost always forms a peak and turns down a few days before the security's price follows suit. Likewise, Williams %R usually creates a trough and turns up a few days before the security's price turns up.

XpressChartsSM: Glossary of Studies

XpressCharts^SM: Glossary of Studies