Indicadores e Candlesticks

8/7/2019 Indicadores e Candlesticks

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Technical Indicators -- Definitions and Explanations

Candlesticks -- Definitions and Explanations

Chart Patterns -- Discussion and Examples

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Education | Technical Indicators | Candlesticks | Chart Pa

Technical IndicatorsWith price volatility at an all-time high, it is becoming increasingly important for the investorecognize patterns in the movements of the stocks they own or are interested in purchasing. interpretation of market activity using technical analysis provides clues to the investor as to future behavior of the price. Generally speaking, the technical investor will use a combinatioprice, volume and time-sensitive technical indicators to maximize their profits. This pageprovides explanations for a complete list of technical indicators utilized by IQ Chart, IQCCorporation's award-winning technical analysis charting software.

ProprietaryIQC Zone

Money Flow

Relative Strength Ranking (RSR)

ConventionalBreadth Advance/Decline

On Balance Volume (OBV)

Bollinger Bands

Parabolic SAR

Commodity Channel Index (CCI)

Relative Strength Index (RSI)

Directional Moving Index (DMI)

Stochastics

Linear RegressionUltimate Oscillator

Moving Average Convergence/Divergence (MACD)

Volatility

McClellan Oscillator

Volume

Momentum

William %R

Moving Average



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Chart PatternsStock charts create advantages for technical investors by helping them identify the underlyintrend or pattern that is moving the price up or down. Being familiar with trendline formationhelp measure investors overall sentiments towards the stock and the company. Chart patternillustrate reoccurring situations that face investors every trading day. Below is a list of chartpatterns covered in this section.

Alpha

Descending Trend Channel

Ascending Trend Channel

Descending TrendlineAscending Trendline

Bar ChartDiamond

Beta

Dormant Bottom

Broadening Formation

Double Bottom

Candlestick Chart

Double Top

Climactic Top

Head and Shoulders

Closing the GapHorizontal Trend Channel

Confirmation/Divergence

Linear/Logarithmic Scale

Cup and Handle

Right-Angled Broadening Triangle

Cycle

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IQC Zone

Definition:

IQC Zone is a proprietary indicator developed by IQC Corporation, backtested over thirty yeof historical data. It utilizes an advanced artificial intelligence (AI) algorithm to generate buand bearish signals. There are two zones on the charts: Bullish zone (blue/green) and Beariszone (red)

Due to the algorithm's complexity, IQC Zone is only available to stocks with history of morone year. For IPO stocks, there is not enough data to calculate IQC Zone, and the indicator icharted with gray colors until it has been publicly traded for one year's time.

Interpretation:

IQC Zone is not an absolute buy or sell signal, but can be an important consideration to tradand investment decisions when integrated into an overall trading or investment approach.

Although there are many powerful methods for incorporating IQC Zone into an investmentscheme, here are several more conventional interpretations of the indicator:

Market Climate

IQC Zone can be used to determine the appropriate climate when selecting stocks. Ifindicators suggest an entry point while the security is in the bearish zone, one mightconsider delaying entry. However, if it is firmly within the bullish zone, entry may b

warranted. The opposite conditions can hold true for determining a proper exit point

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Because IQC Zone is calculated at the end of day only, this interpretation is notwell-suited for intraday or very short-term trading approaches.

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Market Timing

IQC Zone can be used as an intermediate-term trend indicator when the color changes.

When the indicator changes from bearish to bullish, one might consider entering themarket when verified with other indicators.

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When the indicator changes from bullish to bearish, one might consider exiting the mwhen verified with other indicators.

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Risk Minimizing

When the color changes under certain circumstances, it may indicate a trend reversal or periinvestor uncertainty.

If the colors are fluctuating rapidly in a short or intermediate time frame, one mayconsider protecting current profits by standing aside as the market smooths.

q

When the indicator turns from a prolonged bullish period to bearish, one may considq



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closing any open positions until a resumption of the trend or a trend reversal is confi

Index | Previous | Next



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Money Flow

Definition:

Money Flow is one of the more sophisticated and powerful technical indicators relating pricvolume, and is calculated based in each tic during the trading day. The value increases by thshares traded on the level of an uptick, and decreased by the shares traded on the level of adowntick.

Therefore, if there is an uptick on 5,000 shares traded, money flow will increase by 5,000. Ifthere is then a downtick on 600 shares traded, money flow will decrease by 600. If these twotrades comprised the entire trading day, price would have ended even for the day, while monflow would have increased by 4,400.

Interpretation:

Signals are generated when there are divergences between the Money Flow and price.

When price is increasing while money is flowing out of the security, it is a warning oimpending collapse in the price of the stock.

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When the price is trending downward while money is flowing into the security, it is that some savvy buyers are accumulating the stocks.

q




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Relative Strength Ranking

Definition:

Relative Strength Ranking (RSR) is based on the idea that most successful stocks must rankas compared to the overall market based on several criteria. RSR measures the perfromance stock based on the past year's worth of data. Relative Strength Ranking is measured on a sca0 to 100, where each number can be considered a performance percentile out of all availableindividual stocks in the market.

Interpretation:

Relative Strength Ranking can be used as part of an overall selection criteria for purchasing

stocks, and as verification for a stock that has limited potential for a major price advance. Mof the biggest price advances in recent history have been for stocks with an RSR topping eig

Choose leading stocks with high RSR.q

Avoid laggard stocks with low RSR.q




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Breadth Advance/Decline

Definition:

The Breadth Advance/Decline is a market breadth indicator developed by Martin Zweig. It iindicator designed to track the momentum of the broader market and anticipate large upswindownswings in price. This is based on the concept that the number of advancing securitiesaccompanying a market rise is positively correlated with the probability for further advanceLikewise, the number of declining issues pushing the market downward can be correlated wthe probability for further declines.

The Breadth Advance/Decline is calculated by taking the 10 day simple moving average of 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 Exchangeneutral 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 BreadthAdvance/Decline goes above .66, it can be considered very bullish conditions. If it falls belo.37, it can be considered very bearish conditions. Other indicators can verify whether theseconditions warrant an overbought/oversold market or whether the market will continue in itscurrent trend.

A second type of interpretation involves the rapidity of a rise or decline in the indicator. A radecline (defined as approximately .2 with 10 days) can indicate that the market has shifted frsimply overbought market to one of true weakness, potentially forecasting a prolonged bearmarket. A steep increase (defined as approximately .2 within 10 days) can indicate that themarket has shifted from an oversold market to one of robust strength, potentially forecastingextended period of strong growth. Remember, the Breadth Advance/Decline studies the entiof 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 caninterpreted for the market, and confirmed by other indicators for individual stocks or industr

When the indicator goes from positive to negative (crosses above .500) a bearish signal can interpreted for the market, and confirmed by other indicators for individual stocks or industr




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On Balance Volume

Definition:

On Balance Volume (OBV) relates price to volume, and tries to capture the buying and sellipressure in the market. It assumes that when a security closes up for the day, the number ofshares transacted represent buying power. Conversely, the amount of volume on a down dayrepresents selling power.

Therefore, if the price ends up for the day on 10,000 shares traded, OBV's value will increas10,000. Should the price decrease on 25,000 shares, OBV's value will decrease by 25,000.

Interpretation:

Proponents of On Balance Volume maintain that trend changes in OBV occur before trendchanges in price. Therefore, if OBV is going down over time while price is increasing, a priccollapse is possible. If OBV is trending up while price is trending down, the security could bheading for an upswing in price.




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Bollinger Bands

Definition:

Investors use trading bands, lines drawn above and below the moving average, to isolate a raof prices for a given security, based on the concept that a stock generally trades within apredictable range on either side of the moving average. When a stock is near the upper or lolimits of the trading bands is when an investor should pay closest attention, according toconventional wisdom.

Bollinger Bands are considered some of the most useful bands in technical analysis, for theyin distance from the moving average of a security's price based on the security's volatility. Dperiods of increased fluctuation, the bands widen to take this into account, and when the

fluctuation decreases, the bands are tapered for a narrower focus to the price range. The uppband is the standard deviation multiplied by a given factor above the simple moving averagethe lower band is the standard deviation multiplied by the same given factor below the simpmoving average.

Interpretation:

The standard interpretation is that Bollinger Bands do not give absolute buy and sell signalsinstead indicate whether the price is relatively high or low, allowing for more informedconfirmation with other technical indicators.

Bollinger Bands are typically drawn two standard deviations from a twenty day simple mov

average for intermediate-term analysis, ten day for short term with 1.5 standard deviations, afifty for long-term studies with 2.5 standard deviations. According to John Bollinger, for theaccurate average "choose one that provides support to the correction of the first move up offbottom. If the average is penetrated by the correction, then the average is too short. If, in turcorrection falls short of the average, then the average is too long. An average that is correctlchosen will provide support far more often than it is broken."

Mr. Bollinger also contends that:

Sharp moves tend to occur after the bands tighten to the average, when a stock is lesvolatile. The greater the period of less volatility, the higher the propensity for a pricebreakout.

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When the price hits the upper or lower bands, it is suggested to confirm with otherindicators whether that price movement shows strength or weakness, respectively, wcould indicate a continuation. If indicators do not confirm this movement, it can suggreversal.

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Tops or bottoms made outside the bands, followed by the same inside the bands, inda trend reversal.

q

A move originating at one band tends to go to the other band.q



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Parabolic SAR

Definition:

Parabolic SAR was developed by J. Welles Wilder. It is designed to create exit points for bolong and short positions in such a way that it allows for reactions or fluctuations at the beginof the position, but accelerates upward (for long positions) or downward (for short positionsthe movement tops out.

Parabolic SAR is plotted around the price chart like a moving average or Bollinger Bands. Tformula is complex, but is described in great detail in Wilder's book,New Concepts in TechnTrading Systems.

Interpretation:

If the price is above the reading for the SAR, one may consider entering a long position (orbullish). The SAR for each day is the exit point under this interpretation. Therefore, if the prfalls below the SAR one may consider closing this long position.

If the price is below the reading for the SAR, one may consider entering a short position (prbearish). The SAR for each day would be the exit point under this interpretation (or a possibentry point for a long position.) Therefore, if the price rises above the SAR one may consideclosing this short position.

Wilder suggests using this indicator in a trending (or directional) market. If the security istrending up, then one mighty only take long positions. If the security is trending down, one monly take short positions.




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Commodity Channel Index

Definition:

The value of the Commodity Channel Index (CCI) is not limited to commodities, and wasdeveloped by Donald Lambert as a market timing tool, designed to keep trades neutral in asideways moving market, and identify entry points when a breakout occurs. Specifically, thioscillator measures how high or low prices are relative to their statistical mean. A high valuemeans prices are relatively high and while a low value means the opposite. An oscillator refa 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 beinleast 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 beincorporated into many different types of trading schemes or philosophies depending on the of security and the periods being analyzed.

One interpretation is to use CCI as an overbought/oversold oscillator, meaning that when CCin its upper ranges, extending beyond +100, CCI is overbought and a price correction isforthcoming. When CCI is well into its lower ranges, extending below -100, a price rally isapproaching.

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.q

When the CCI dips below -100, it is a bearish signal.q

Critics of the indicator say that CCI often misses the early part of the price movement. Toovercome 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.q

When CCI crosses zero from positive to negative, it is potentially a bearish signal.q

A third interpretation is to integrate the two views, and look for divergences as the distinguifactor. For instance, if the price is breaking new highs, as the CCI is not, the security ispotentially oversold, whereas is both are reaching new highs, then an uptrend will possiblyensure. The reverse conditions can hold true when the price reaches new lows over a givenperiod.




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Relative Strength Index

Definition:

Relative Strength Index (RSI), an oscillator introduced by J. Welles Wilder, Jr., could be moappropriately called the internal strength index, for it compares the price of a security relativitself. The RSI is based upon the difference between the average of the closing price on up dvs. the average closing price on the down days over a given period, and is plotted on a verticscale of 0 to 100. An oscillator refers to a momentum or rate-of-change indicator that is usuavalued from -1 to +1 or 0% to %100.

Wilder advocated a 14-day RSI, although shorter and longer periods have gained popularitythe market exhibits certain characteristics. Generally, RSI is measured in a period between 5

25.

Interpretation:

There are several possible interpretations for the Relative Strength Index, any of which can bvery powerful depending on the market conditions and trading/investment approach: Oneinterpretation is that buy signals are triggered when RSI is in oversold (20-30) area, potentiameaning that the stock is about to reach its low for this trend, and sell signals are triggered wRSI is in overbought (70-80) area, potentially signaling a market top.

A second mode of interpretation is to look for support and resistance lines or common chartformations such as head and shoulders in the RSI itself, indicating potential reversals that th

stock chart may not.A third mode of interpretation is to recognize divergences in the RSI, such as when the pricemoving up when the RSI is moving down or vice versa. This can mean that the price is goin"correct" and move in the direction of the RSI.

A fourth mode of interpretation for the RSI is to view it as a bullish or bearish signal when icrosses 50. When the RSI crosses above 50 it can be considered bullish, and when it crossesbelow 50 it can be considered bearish.




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Directional Moving Index

Definition:

The Directional Movement Index (DMI) is a trend-following indicator developed by J. WellWilder, Jr., designed to determine whether a security is in a trending or non-trending marketSince the market is in a strong trend only about 30% of the time and in sideways about 70%the time, this indicator is used to capture the period when the market shows significant trendor 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 rangethe last day and previous close, smoothed over a given number of periods.

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-DI: current negative directional index, the range of lows divided by the price range the last day and previous close, smoothed over a given number of periods.

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ADX: modified moving average of the difference of +DI and -DI divided by the sum+DI and -DI, multiplied by 100.

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Interpretation:

When the +DI rises above the -DI, it can be considered a signal for an uptrend. When the +Dcrosses 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 beconsidered valid in most circumstances.

ADX should be rising1.

ADX should be above 502.

Confirmation from another indicator is encouraged pointing towards strong trendingvolatility characteristics.

3.

A more strict interpretation of the Directional Moving Index calls for a fourth criterion to beFor an uptrend to be valid, the price of the security must rise above the high of the day that t+DI crossed above the -DI. For a downtrend to be valid, the price of the security must dip be

the low of the day that the +DI crossed under the -DI.




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Stochastics

Definition:

The Stochastics oscillator, a popular and dynamic indicator developed by Dr. George Lane, based on the premise that during an upward trading market, prices tend to close near their hiand during a downward trading market, prices tend to close near their low. Stochastics measat what point the price of a security is within the entire price range of the security over a givperiod.

The stochastics indicator is plotted as two lines, %K and %D. The range of the Stochastics ibetween 0 and 100. With a price range of ten to twenty, ten would be given a 0 designation,fifteen would be at 50, and a price of twenty would be at the 100th percentile. The values of

stochastics calculations are dependent on the parameters given to %K and %D.

There are two types of stochastics: fast stochastics and slow stochastics. When calculating fastochastics, the raw value of %K is the point at which the current price lies within the historiprice range of its given period, and the value of %D is the moving average of %K over a givnumber of periods.

When calculating slow stochastics, the value of %K slow is the %D-period moving average the point at which the current price lies within the historical price range of its given period (oraw %K), and the value of %D slow is the moving average of the %K slow over a given numof periods.

IQ Chart and IQC.COM use slow stochastics, which by being smoothed, tend to exhibit lessmarket noise.

An oscillator refers to a momentum or rate-of-change indicator that is usually valued from -+1 or 0% to %100.

Interpretation:

There are several major interpretations for stochastics, which may be more beneficial whencombined with other indicators that discern whether a market is in a trending or cyclical rotamode.

One interpretation (and the one Dr. Lane believes to be most important) is to look for a

divergence between %D and the price. An overbought market occurs when %D makes a serlower highs while the price makes a series of higher highs. An oversold market occurs whenprice makes a series of lower lows while %D makes a series of higher lows.

A second interpretation is to receive signals based on a crossover of the two lines. When theline rises above the %D line it is considered bullish, and when the %K line falls below the %line, it is considered bearish. You can eliminate some false signals by using only the signalswhich correspond to the direction of the intermediate to long term trends.

A third interpretation is that a buy signal is generated when either line dips below and then rabove 20, and a bearish signal is generated when either line rises above and then dips below



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Many investors combine several of these interpretations as a major criterion used for makingtrading decisions.




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Linear Regression

Definition:

Linear regression is a statistical tool used for forecasting future price. The concept behind linregression is to find the best estimate of the trend given a noisy sample of data points. It iscalculated by using the "Least Squares" method over a given period, which is drawn as atrendline extending through the defined period that attempts to filter out market noise.

Interpretation:

There are two conventional interpretations for the linear regression line.

The first interpretation is to use the linear regression as the overall trendline for that given peIf the line is positive, it may suggest a buying opportunity, whereas a turn downwards suggeone may consider selling the stock. Price divergences below the line indicate a possible buyopportunity, for the market is oversold, while divergences above the line indicate the markepotentially overbought. Linear regression will work best when the period being studied is simto the cycle length or typical trend length of the security in question.

A second interpretation is to construct a linear regression channel, consisting of two parallelat fixed distances above and below the linear regression line. These lines can be used as supand resistance lines, which are used to watch the battle between buyers and sellers.

Support and resistance lines are drawn as the upper and lower limits of a trading range, whethe support line is the bottom line, and is the point at which "bulls" will not let the price fallbelow, and the resistance line is the top line, the point above which the "bears" will not let thprice rise above.

Conventionally, a breakout above resistance or below support indicates that there is either a)some news about the company which justifies recreating the upper and lower trading limits there is about to be a correction towards the range as trader's are hesitant about the stock's nevalue.




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Ultimate Oscillator

Definition:

Larry Williams developed the Ultimate Oscillator as a way to account for the problemsexperienced in most oscillators when used over different lengths of time. Williams' UltimateOscillator, therefore, combines three oscillators which represent short, intermediate, and lonterm market cycles (7, 14, & 28-period). It is expressed as a single line plotted on a vertical valued between 0 and 100.

An oscillator refers to a momentum or rate-of-change indicator that is usually valued from -+1 or 0% to %100.

Interpretation:

Williams' suggested interpretations must meet fairly rigorous criteria, but can be very powercertain market climates and when verified with other indicators.

A first set of signals is generated when there is a divergence between price action and what iseen on the Ultimate Oscillator.

When the price reaches a lower low and is not supported by a lower low of the UltimateOscillator, a bullish signal is generated, provided that the Oscillator falls below thirty duringdivergence AND the Oscillator then rises above its high during the span of the divergence.

The subsequent uptrend can be ended, according to Williams' interpretation, should the valuthe Ultimate Oscillator rise above seventy OR rise above fifty and then dip below forty-five

When the price reaches a higher high and is not supported by a higher high of the UltimateOscillator, a bearish signal is generated, provided that the Oscillator rises above fifty duringdivergence AND the Oscillator then falls below its low during the span of the divergence.

The subsequent downtrend can be ended, according to William's interpretation, should the vof the Ultimate Oscillator rise above sixty-five OR fall below thirty.




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Moving Average Convergence/Divergence

Definition:

Moving Average Convergence and Divergence (MACD) is the difference between a fastexponential moving average (fast EMA) and a slow exponential moving average (slow EMAThe name was derived from the fact that the fast EMA is continually converging towards andiverging away from the slow EMA.

In IQ Chart, we show the difference between the two moving averages (the MACD) plotted green or blue vertical lines, and a red signal line plotted over the MACD which is a movingaverage of the MACD line.

Interpretation:

The MACD can be a very helpful technical indicator, and is subject to several conventionalinterpretations which can all be useful depending on your trading and investment philosophi

One interpretation is that a positive MACD value is a bullish signal, and a negative MACD is a bearish signal.

The crossover interpretation posits that the signal line can be used alongside the MACD todetermine the appropriate entry and exit point. (The signal line is a moving average of theMACD line). When the MACD falls below its signal line, it can be considered a sell signal.Similarly, a buy signal can be interpreted when the MACD rises above its signal line.

A third popular method of interpretation is that when the MACD is making new highs or lowand the price is not also making new highs and lows, it signals a possible trend reversal. Thiof interpretation is often verified with an overbought/oversold oscillator.




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Volatility

Definition:

Volatility is a measure of a stock's tendency to fluctuate over a range of prices during a set pof time. IQ Chart calculates volatility as the annualized standard deviation of the price fluctuover a given period.

Interpretation:

Volatility has several uses and potential interpretations.

First, the degree of volatility of a particular security can be used to determine whether or not

stock should be considered for selection. Low degrees of volatility can suggest that a stock wtend to stick to its underlying trend while high degrees of volatility can suggest that a stock wmove greatly about its trend. This knowledge can be valuable for incorporating into trading investment strategies in a number of ways, including the likelihood of a price change being trend change, how price movement is related to industry or market movement, whether a stomore appropriate for longer-term or shorter-term analysis, and so on.

Second, when a stock tends to have a certain range of volatility over an extended period of tand then breaks out of the range upward, it can mean that there will be a change in trend. If ibreaks out of the range downward, it can mean that the frequency and severity of short-termswings will decrease as the overall trend establishes itself among investors.

Third, recognizing cycles in volatility can be useful in determining appropriate times to antia price breakout. Many stocks can have cycles with a high degree of regularity. Volatility'stendency to be autocorrelative (meaning that reversals often continue in the new direction) chelp create circumstances to be a powerful leading indicator.

Finally, volatility can be used to calculate the theoretical option value.




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McClellan Oscillator

Definition:

The McClellan Oscillator is a technical indicator based on the New York Stock Exchange, nany one particular stock. It is a short term and intermediate term "market breadth" indicator,meaning it is designed to determine the strength of a market trend. This is based on the concthat a robust uptrend or downtrending market is characterized by a large number of stocksadvancing or declining moderately, rather than a small number of stocks making large gainslosses.

The McClellan Oscillator is calculated by subtracting a 39-day exponential moving average the difference between the advancing issues and the declining issues from a 19-day exponen

moving average of the difference between the advancing issues and the number of the declinissues in the New York Stock Exchange.

Interpretation:

Volatility has several uses and potential interpretations.

There are two major sets of interpretations for the McClellan Oscillator.

The first interpretation is to use regions to derive bullish and bearish signals. If the Oscillatoextends below -100 or above 100, it represents extreme oversold/overbought conditions, andsuggests a continuation of the current downtrend or uptrend for a short-to-intermediate periotime, respectively.

If the McClellan Oscillator falls into the -70 to -100 region and turns up, it can be consideredbullish. On the other hand, if it rises into the +70 to +100 region and turns down, it can beconsidered bearish.

The second interpretation is to look at whether the Oscillator is positive or negative.

When the indicator goes from negative to positive, a bullish signal is generated.q

When the indicator goes from positive to negative, a bearish signal is generated.q




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Volume

Definition:

Volume is the total number of shares of transacted during a specified period. Although this irather basic indicator, volume can provide some very powerful clues to anticipate price beha

Interpretation:

One interpretation for volume can be used to determine the strength of a trend, or confirm thmovement of the price. During trending markets, volume tends to be positively correlated wthe direction of a trend. In a longer-term upward trend, there will tend to be higher volume aprice goes up and lower volume as the price goes down. During a longer-term downward tre

there will tend to be higher volume as the price goes down and lower volume as the price goup. If these characteristics are not exhibited, it can potentially signal the changing of the ovetrend. This analysis can also be done on shorter and intermediate trends with certaincharacteristics.

During sideways markets, a higher level of volume can mean that the price will break out oftrading range.

Prolonged periods of lower volume can indicate high levels of uncertainty about the futuredirection of the price, often found in sustained sideways markets or market bottoms.




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Momentum (Rate-Of-Change/ROC)

Definition:

Momentum is a relatively straightforward indicator that measures the rate of change in priceopposed to price itself. It is calculated by subtracting the price of x periods ago from the pricnow. This indicator can also be referred to as rate-of-change (ROC).

To reduce the choppiness of the indicator, the value given in IQ Chart is a five-periodexponential moving average of itself.

Interpretation:

The conventional interpretation is to use momentum as a trend-following indicator. This methat when the indicator peaks and begins to descend, it can be considered a sell signal. Theopposite conditions can be interpreted when the indicator bottoms out and begins to rise.

If momentum reaches very high or low values relative to its range historically, a continuatiothe current trend is likely, and a change might not be considered until the actual price beginsdip down or rise, respectively.




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Williams %R

Definition:

The main concept of Williams' %R is "gravitation towards the mean." If within a given timeperiod, the price is near the high end of a period's range, the security tends to be overboughtis vulnerable for a selloff. Conversely, if the price is near the low end of a period's range apotential rally is could occur due to oversold market conditions.

IQ Chart does not plot Williams' %R as negative numbers, but on a scale of 0 to +100, so asmake its conventional signals in line with other common oscillators and indicators. An oscilrefers to a momentum or rate-of-change indicator that is usually valued from -1 to +1 or 0%%100.

Interpretation:

If Williams' %R moves above 80, it can be considered a signal of an overbought market. WhWilliams' %R moves below 20, it can be considered a signal of an oversold market.

While Williams' %R is a very powerful indicator used by many market technicians, the folloshould be noted when using this indicator. Although %R has some tendencies to be a leadinindicator (in other words, to bottom out or peak before the price does), some suggest that onmight not consider buying in an oversold market until the price actually begins to turn upwaor sell in an overbought market until the price actually begins to turn downward. This is duepotentially prolonged overbought/oversold periods. This suggests that %R should be confirm

with other indicators that may be able to distinguish between the two circumstances.The optimal period for %R is the cycle length of the security, although periods of ten and tware also commonly used.




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Moving Average

Definition:

Moving Average (MA) is perhaps the oldest and the most widely used technical indicator. Itshows the average value of a security's price over time.

Moving averages can be calculated in a number of ways.

A simple moving average is calculated by adding the prices over a given number of periods,dividing the sum by the number of periods. For example, a nine-day simple moving averagewould add together the closing prices for the last nine days, and then divide that number by

An exponential moving average gives more weight to recent prices, and is calculated by appa percentage of today's closing price to yesterday's moving average. The longer the period oexponential moving average, the less total weight is applied to the most recent price. Theadvantage to an exponential average is its ability to pick up on price changes more quickly.

Both IQC.COM and IQ Chart use exponential moving averages.

Moving averages are very flexible, and can be incorporated into most trading and investmenphilosophies.

One thing to keep in mind is the shorter the time period, the more reactionary a moving averbecomes. A 10-day moving average is much more sensitive to moves than a 50-day moving

average. However, a shorter period also means that you may have a greater number of falsemoves within an existing trend, what is considered "market noise" or a "whipsaw".

Moving averages can be used to evaluate trends in both the short-term and long term. A typishort term moving average ranges from 5 to 25 days, an intermediate-term from 25 to 100, along-term 100 to 250 days.

Formula:

The formula for an exponential moving average is as follows:

Exponential Percentage = 2/Time Period + 1

Therefore, a 50-day EMA will have a 3.9 % exponential average. .039 = 2/50 + 1

This means that the most recent day will be weighted 3.9% of the value of the EMA. For a50-day simple moving average, each day has precisely a 2% weight.

Interpretation:

There are two major ways moving averages are used.

First, the moving average can be compared to the price. If the price rises above the movingaverage it can be considered a bullish signal, and if the price dips below the moving averagecan be considered a bearish signal. This "crossover" or "penetration" will not be at the top o



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bottom, but normally shortly after the price bottoms out or tops out.

Second, longer-term and shorter-term moving averages can be compared to each other, andgenerate signals when they cross. When a shorter term MA moves across a longer term MAboth slopes go up, it can be considered a bullish signal. When a shorter term MA moves acrolonger term MA and both slopes go down, it's can be considered a bearish signal.




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What is a candlestick?

Doji White Day Black Day

More than 200 years ago, the Japanese were using their own style of technical analysis in thmarket. This style evolved into the candlestick technique currently used in Japan.

Candlestick charts are a useful stand alone tool. They can be merged with other technical toocreate a synergy of techniques. Certain Candlestick combinations may imply a period ofconsolidation; Others hint of a forceful price move. They give deep insight into the marketconditions.

In the Japanese candlestick, one of the major elements is the body of the candlestick. Thedifference between the open and close prices makes a box which we call real body. A black means the close is lower than the open, and a white body means the close is higher than the Usually there are extension lines come out from the ends of the real bodies, they are calledshadows. Those lines represent the high and low prices for the trading days.




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Long Days

The Long Days indicate the great difference between the open price and the close price for atrading day. The shadow lines are much shorter than the real body.




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Short Days

The Short Days indicate the small difference between the open price and the close price for trading day. Both the body and the shadow lines are very short.




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MarubozuMarubozu means there are no shadows from the bodies.

A White Marubozu is a long white body with no shadows which indicates a bullish trend. Itusually becomes the first part of a bullish continuation or a bullish reversal pattern.

A Black Marubozu is a long black body with no shadows. It usually implies bearish continuor bearish reversal.




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Spinning Tops

The Spinning Tops have longer shadow than the real body. The color of the real bodies are nvery important. The pattern indicates the indecision between the bullish and bearish trends.




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DojiDoji lines are patterns with the same open and close price. There are four special types of Dolines.

The Long-legged Doji has a long upper and lower shadows with the price in the middle of thrange. It indicates indecision of traders.

The Dragonfly Doji has a long lower shadow and no upper shadow. It is a good indication obearish trend reversal.

Gravestone Doji line has a long upper shadow and no lower shadow. It is a good indication bullish trend reversal.

Four Price Doji's all prices: open, high, low and close are the same for a trading day. It's a veunique line indicating the indecision of the traders, or very quiet market.




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Stars & Rain Drops

A Star appears when a small body gaps ABOVE the previous day's long body. Stars are partmore complicated candlestick patterns, especially the reversal patterns.

A Rain Drop appears when a small body gaps BELOW the previous day's long body. Rain Dare part of the more complicated patterns, especially the reversal patterns.




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Paper Umbrella

The Paper Umbrella appears when a small body comes with a long lower shadow. The PapeUmbrella is a strong reversal sign.




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Hammer

Hammer is a potentailly bullish pattern which occurs during a downtrend. It is named becaumarket is hammering out a bottom.

Recognition Criteria:

The long lower shadow is about two to three times of the real body.q

Little or no upper shadow.q

The real body is at the upper end of the trading range.q

The color of the real body is not important.q

(Confirmation is suggested.)




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Hanging Man

Hanging Man is a potentially bearish pattern which occurs during an uptrend. It is named beit looks like a hanging man with dangling legs.


A long lower shadow which is about two to three times of the real body.q

Little or no upper shadow.q

The real body is at the upper end of the trading range.q

The color of the body is not important, though a black body is more bearish than a wbody.

q





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Engulfing

Bullish Engulfing Bearish Engulfing

Engulfing is a revesal pattern, especially after a prolonged trend. It has a long body that toto

engulfs the prior day's body.


The first day's color indicates the trend of the trading day.q

The second real body should have the opposite color of the first real body.q

The second day's body should completely engulf the previous day's body.q





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Harami

Bullish Harami Bearish Harami

The Harami pattern is the reverse of the Engulfing pattern. The word harami in Japanese me

pregnant or body within.


A long body followed by a shot body with opposite color.q

A short body is completely within the prior day's long body.q

The color of the second candle ( the baby) is not important.q





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Harami Cross

Bullish Harami Cross Bearish Harami Cross

In Harami pattern, if the small candle is a doji, the pattern is refered as Harami Cross. It is a

important reversal sign, especially after a long body in a downtrend.


The second day's open and close are the same (Doji).q

The Doji is in the range of the previous long day.q

The long day appears within A trending market.q





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Inverted Hammer

The Inverted Hammer is a pattern that occurs at the bottom of a downtrend. It indicates apossibility of the reversal of the downtrend.


A small real body is near the lower part of the price range.q

The very long upper shadow.q

Occurs in a downtrend.q





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Shooting Star

The Shooting Star is a bearish reversal pattern. It occurs in an upper trend which indicates ththe market opens at the lows of the season, rallies and pulls back to the bottom.


A very long upper shadow.q

The small real body at the lower end of the price range.q

The real body gaps away from the prior real body.q





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Piercing Line

The Piercing Line is a bullish reversal pattern which is composed of a long black body folloby a white body. It tells that the market opens lower on the opening and closes above the

midpoint of the prior body.


A long black body followed by a white body.q

The white body pierces the midpoint of the prior white body.q

Occurs in a downtrend.q





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Dark Cloud Cover

The Dark Cloud Cover is a bearish reversal pattern which is composed of a white body folloby a black body. It is the opposite of the Piercing Line. It tells that the market opens above th

prior day's high, and closes below the midpoint of the prior white body.


A white body followed by a black body.q

The black body passes the midpoint of the prior white body.q

Occurs in an uptrend.q





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Doji Star

Bullish Doji Star Bearish Doji Star

A Doji Star is a trend reversal pattern which is composed of a long black body followed by a

doji(a pattern with the same opening and closing price).


Long black day followed by a doji.q

The doji gaps down from the prior black body.q





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Morning Star

The Morning Star is a reversal pattern which is composed of a long black body, a star gaps afrom the black body, and a long white body. The third candle is the confirmation of the reve

It is named because it appears in the morning before the sun rises.


The first day is a long black day.q

The second day is a star gaps away from the first day.q

The third day is a long white body that gaps up from the prior star.q





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Evening Star

The Evening Star is a bearish reversal pattern. It's made of a long white body followed by a body which gaps higher, which makes the price gap higher on the open, with a small range.

third day is a black body which opens lower and close much lower.


The first day is a long white day.q

The second day gap higher from the first day.q

The third day is a long black day and close below the midpoint of the first white dayq





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Morning Doji Star

When a downtrend market is in place, following by a Doji Star. Like the regular Morning Stthe third day will support the reversal of the trend. It is more significant than the regular Mo

Star pattern.


The first day is a black day which indicates the trend of the market.q

The second day must be a Doji day.q

The third day is a white day and supports the reversal of the trend.q





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Evening Doji Star

An Evening Doji Star is when a Doji Star is in an uptrend followed by a long black body. Lithe regular Evening Star, the third day will support the reversal of the trend. It is more signif

than the regular Evening Star pattern.


The first day is a white day which indicates the trend of the market.q

The second day is a Doji day.q

The third day is black day which supports the reversal of the trend.q





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Abandoned Baby

Bullish Abandoned Baby Bearish Abandoned Baby

Abandoned Baby pattern is similar to the family of Morning Star and Evening Star patterns.almost the same as Morning Doji and Evening Doji Star. The difference is the shadows on thDoji must gap below the shadows of the first and third days for the Abandoned Baby bottom


The first day shall indicates the prior trend.q

The second day is a Doji which gaps above or below the previous day's range.q

The third day is the opposite color of the first day and gaps in the opposite direction.q

There is no shadows overlapping between the Doji and other two days.q





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AlphaHow a stock outperforms or underperforms the broader market. Usually measured against thDow Jones Industrial Average or the S&P 500.

This chart measures the performance of America Online, McDonalds and UAL against the DJones Industrial Average from January, 1998 to June, 1998. America Online and McDonaldhave positive alphas (with America Online being higher), while UAL under-performed the Dgarnering a negative alpha.

In IQ Chart, you can compare any index with up to four stocks at one time. You may do so bclicking on "Chart" >> "Compare with" >> "Other Company or Index". A window will pop-allowing you to input up to four symbols.




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Descending Trend ChannelIf connecting the price bottoms of a particular stock or index compose a downward sloping lparallel to a line connecting the tops of that stock or index, the Descending Trend Channel iarea between the two lines.

This is a daily chart of McDonald's Corporation. An ascending trend channel is formedconnecting the price tops and bottoms from April to July. In this case, when the ascendingchannel is penetrated, a descending trend channel is formed, from July to September.

Our proprietary indicator, IQC Zone, could confirm this penetration. It turned from green towhen the ascending trend channel was penetrated, and turned green again when the descendtrend channel was penetrated.

You can choose up to four indicators at a time, such as IQC Zone, to display above the chartclicking on "Indicators" within IQ Chart. All drawing functions in IQ Chart Version 3.1, suctrendlines, are performed by clicking on "Toolbox".




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Ascending Trend ChannelIf connecting the price tops of a particular stock or index compose an upward-sloping lineparallel to a line connecting the bottoms of that stock or index, the Ascending Trend Channethe area between the two lines.

This ascending trend channel was drawn on a 60-minute chart of Applied Materials. Each bathe chart or vertical line of volume represents one 60-minute period of market activity forAMAT. Although the price was moving upwards at a steady pace for this month, there was

great deal of movement within that range. Studying this movement can help provide buy andopportunities for the technical investor.

Trend channels most often appear in frequently traded stocks. Notice how volume increasesprice reaches the bottom of the channel and the top of the channel. This could signal that theare supply and demand constraints within the trend channel. If a price penetrates the upper olower trendlines, it could signal a change in trend.

All drawing functions in IQ Chart Version 3.1, such as trendlines, are performed by clicking"Toolbox". You can choose up to four indicators at a time, such as volume, by clicking"Indicators" within IQ Chart.



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Ascending TrendlineIs formed when the price bottoms of a particular stock or index form an upward-sloping line

This ascending trendline is drawn on a weekly bar chart of Sun Microsystems. The technicaindicator Williams %R is displayed above the chart. Over the course of three years, the weeklow had not dipped below the trendline. In this upward trending stock, the bottoms that meetrendline could represent bottoms of intermediate-term trends, and buying opportunities forSUNW. If the trendline is penetrated, it may signal a trend change.

The use of the Williams %R indicator in this case may support that evaluation. When the prireaches the trendline, and then begins to turn up, Williams %R does also. Notice how each lWilliams %R is higher than the last, a possible confirmation of the overall price movement.

All drawing functions in IQ Chart Version 3.1, such as trendlines, are performed by clicking"Toolbox". You can choose up to four indicators at a time, such as Williams %R, by clickin"Indicators" within IQ Chart.




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Bar ChartA bar is a visual representation of price movement over a given period. A bar chart is a groubars in chronological order. In IQC.COM and IQ Chart's bar charts, each individual bar conof a vertical line and a horizontal line extending to the right from a point on the vertical linetop and bottom of the vertical line are the high & low prices of the stock during that time perThe horizontal line is the closing price of the stock during that time period.

This is a daily bar chart of America Online. The color of the bars correspond with IQ Chart's

proprietary indicator, IQC Zone. You can choose up to four indicators at a time to display abthe chart, such as IQC Zone, by clicking "Indicators" within IQ Chart. Bar charts can bedisplayed in historical daily, weekly & monthly charts as well as intraday charts, such as5-minute and 15-minute intervals.




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DiamondAn uncommon but recognizable reversal pattern that begins as a broadening formation andreverts to a symmetrical triangle after several swings to make a four-cornered pattern. Normoccurs only in very active stocks, and shows up more often during tops.

Dupont is a fairly active stock, and displayed a diamond pattern in a daily chart for the last h1998. The broadening formation begins in September, and changes to a symmetrical trianglemid-October. By late-November, all four corners have formed. Ultimately, the stock price

penetrated the lower boundaries of the diamond, and continued to decline over the next threweeks.

Notice the three technical indicators plotted above the chart. All three show very little volatipossibly suggesting investor indecision as the diamond moves towards consolidation.

You can choose up to four indicators at a time, such as volume, stochastics & CCI, to displaabove the chart, by clicking on "Indicators" within IQ Chart. All drawing functions in IQ ChVersion 3.1, such as trendlines, are performed by clicking on "Toolbox".




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With a negative beta, a climb in the price of an index should correlate with a drop in the pricthe stock, and vice versa. In this daily chart of Chevron (using the same period of time as in IBM example), the price of Chevron rises when the S&P 500 is essentially flat, and begins tdrop and stagnate as the S&P 500 increases towards the end of the period shown.

In IQ Chart, you can compare a symbol with the S&P 500 or Dow Jones Industrial Average clicking "Chart" >> "Compare with" >> "S&P 500". You can also compare any stock or indwith up to any four stocks or indexes at one time. You may do so by clicking on "Chart" >>"Compare with" >> "Other Company or Index". A window will pop-up, allowing you to inpto four symbols.




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Dormant BottomOccurs with low-volume stocks with few shares outstanding during an active rising broadermarket, where for an extended period of time (weeks or months) there is very little movemeprice or volume. Eventually, there is a flurry of activity, and prices advance sharply. The theis that savvy investors pick up small lots when they come up as opposed to running up the pby bidding on the stock. When this reaches a critical mass, the stock price shoots upward. Thpattern is a type of Rounded Bottom.

This daily chart of Greg Manning Auctions had all of the potential signs to be a dormant botVery little activity during an active, rising broader market. But how could one anticipate sucmove upward? All of the technical indicators plotted above the chart suggested an upwardmovement was possible.

In late October, momentum crossed above zero, and relative strength ranking crossed aboveon the same day. Volume also picked up on that day, and could have signaled the events tofollow. All indicators gave signals several weeks before the major price increase, possiblysuggesting that some savvy investors were getting into the market when shares became avaiin the previous months.

You can choose up to four indicators at a time, such as volume, momentum and relative stre



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Broadening FormationCould be referred to as inverted triangle patterns, as they are formations which start with narfluctuations, and then widen with diverging boundary lines.

This is a daily chart of American Eagle Outfitters. The broadening formation is shown by twdiverging trendlines and has continued over an eight m

Indicadores e Candlesticks

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