Mathematical method. Technical indicators.
Simple Movings Averages
This indicator is a arithmetical average of a price for a certain period of time which can be input manually. This moving average is called Simple and is used the most often. Inertness is inhering to it. Usually two moving averages are used:
Point of two Moving Averages convergence-divergence is a signal for trend change.
Disadvantage is that the signal is lagging.
Advantage is that trend direction is easy to determine, it as well may be used as resistance and support lines.
OSCILLATOR RSI
Some calculations to determine if market is overbought or oversold are based on prices follow them.
Oscillator curve must be close to price curve.
Oscillator change ranges from 0 to 100. Optimal value for sell is 70, for purchase it is 30. These zones are called:
Overbought zone - o/b
Oversold zone - o/s.
During strong trend movements the levels of o/b and o/s can be used respectively at levels of 80 and 20. On the RSI diagrams all the figures from price diagrams can be found.
MACD - Moving Averages Convergence Divergence
MACD is a combination of the three exponentially smoothed MA displayed as two lines. First line shows the difference between 12-period exponential MA and 26-period exponential MA. Second line called Signal Line is the average exponential equivalent of 9-period MA of the first line. MACD is usually represented as oscillator line or histogram.
Convergence is a signal for sell or purchase. It perfectly reflect the picture of divergence. Standard periods of MA are 12 and 26, signal line has a period 9.
Divergence
Divergence is a situation when the direction of price movement and technical indicators does not coincide. Most often show upon reaching o/b or o/s indicator zones of RSI indicator (20;80). Divergence is considered a strong sign of trend reverse. There are bullish and bearish divergences. The most often divergence works on corrective movement of the price, but it may be misleading on trend.
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