l Introduction

-Definition

-Construction

-Characteristics

lAnalysis

lVolumeStudies

l TypesofMomentumIndicators

lConclusion

Lecture 5Objectives

ReadingMaster Textbook

TechnicalAnalysis:TheCompleteResourceforFinancialMarketTechnicians2ndEditionCharles D. Kirkpatrick and Julie R. Dahlquist

Chapter8;pp.131-162.Chapter18;pp.407-446

Additional ReadingHowTechnicalAnalysisWorksKamich, Bruce,chapters14-16

College level IntroduCtIon to teChnICal

analysIs

This lecture series is produced by the Market Technicians Association

Educational Foundation, Inc. Copyright 2011.

All rights are reserved.

MoMentuM IndICators

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Updated 7/14/11

Momentum indicators Lecture 5, page 2College Level Introduction to Technical Analysis

Volume [Chapter 18, Page 411] General

Amount of shares or contracts traded over the period of the bar

Portrayed as a vertical bar below the price bar (Chart 1)

Standard guides

Volume should go with the trend

Volume not going with the trend is a warning of impending trend reversal

Exceptionally high volume is a signal of an important change.

Volume is a secondary indicator never should supplant price analysis

Indexes used for divergence analysis [Chapter 18, Page 416]

OBV uses guide above as its logical base. Index of plus or minus volume day based on change of close. (Chart 2)

Other calculations with very similar results

Oscillators used for divergence analysis and overbought/oversold indicator (Chart 3)

Volume Oscillator simplest. Ratio of two moving averages of volume. Should confirm the price trend (divergence analysis) (Chart 4 and 5) [Chapter 18, Page 420]

Others show about the same information

Spikes (Chart 6)

Usually a sign of a strong support or resistance level or a sudden change in information (gap) or action (breakout).

Open Interest [Chapter 18, Page 427] Expanding should confirm the trend, just as in volume.

Table: Open Interest

Price [Chapter 18, Page 429] General

Momentum first and second derivative velocity = price change per time, momentum = acceleration/deceleration (without mass) of velicity)

Oscillators used as signals are not very profitable. Should only be used as confirmation trend, OB/OS, divergence

Types

MACD difference of two exponential moving averages. Signal line is moving average of difference. Histogram plots difference between MACD line and signal line. (Chart 7)

Signals on crossovers

Signals on change in direction of histogram lines

Divergences

Swing failures

SeLL LOng SeLL ShORT

Buy long Remainsthesame Plusopeninterest

Buy to cover Minusopeninterest Remainsthesame

Chart 1Price and Volume

Chart 2On-Balance Volume

Chart 3Chaiken Accumulation Distribution

Chart 4Volume Oscillator

Momentum indicators Lecture 5, page 3College Level Introduction to Technical Analysis

Rate of Change (Chart 8) [Chapter 18, Page 434]

rsi (Chart 9) relative strength index current action relative to action in the past.

Measures the number and amount of up bars versus down bars

Bounded by 0 and 100

Signals

OB/OS be careful of trending stock

Divergences

Swing failures

Trend lines, patterns (usually triangles)

Stochastic (Chart 10) measure current price versus defined past window of prices best in trading range. [Chapter 18, Page 437]

Signals the same as for other oscillators

similarities (Chart 11)

Combinations

adX for trend

oscillator

Moving average

Chart 5Chaiken Money Flow

Chart 6Volume Spikes

Chart 7Moving Average Convergence-Divergence (MACD)

Chart 8Rate of Change (ROC)

Momentum indicators Lecture 5, page 4College Level Introduction to Technical Analysis

Chart 9Relative Strength Index (RSI)

Chart 11MACD and RSI

Chart 10Stochastic