Candlestick Chart Analysis
Candlestick charts have been around for hundred years. They are often referred to as “Japanese candles” because the Japanese would using them to analyze the price of rice contract. Similar to a bar chart, candlestick charts also display the, daily high and daily low, open, close. The difference is the use of colour to show if the stock went up or down in a day. The chart below is an example of a candlestick chart for AT&T (T). Green bars indicates the stock price raise, red indicates a fals: Figure: Candlestick charting
Investors seem to have a love & hate relationship with candlestick charts. People either love them or hate and use them frequently or they are completely twisted …show more content…
Using a standard deviation ensures that the bands will react quickly to price movements of stock and reflect periods of high & low volatility. Share price increases or decreases, and hence volatility, will lead to the widening of the bands. Figure: Bollinger Bands Width
The centre band is a 20 day simple moving average( SMA). The upper band is the 20-day simple moving average plus two standard deviations. A lower band is the 20-day simple moving average less two standard deviations
3.5.2 Relative strength index (RSI):
There are few different tools that can be used to interpret the strength of the stock. One of this is the Relative Strength Index (RSI), which is a comparison between the days that a share finishes up & a day it finishes down. This indicator is a big tools in the momentum trading.
The RSI is a reasonably simple model that anyone can use this. It is calculated using the following formula.
RSI = 100 - [100/(1 + RS)]
RS = (Avg. of n-day up closes)/(Avg. of n-day down closes) n = days (most analysts use 9 - 15 day …show more content…
The peak in the September was followed by lower price movements that corresponded with volume spikes, thus implying that the downtrend was going to continuously.
3.5.5 Moving average convergence divergence (MACD):
Common, the “MACD” is a trend following, momentum indicator that shows the relationship between 2 moving averages of stock prices. To Calculate the MACD subtract the 12-day EMA to 26-day EMA. A 9-day dotted EMA of the MACD called the signal line is then plotted on top of the MACD. There are three common methods to interpret the MACD:
Crossover – When the MACD falls below the signal line it is a signal to sell. When the MACD rises above the signal line is.
Divergence – When the security diverges from the MACD it signals the end of a current trend.
Overbought/Oversold – When the MACD rises dramatically (shorter moving average pulling away from longer term moving average) it is a signal the security is high sell and will soon return to normal levels.
Other less common this include triangular, variable, & weighted moving average. All of them being slight deviations from the ones above & are used to detect different characteristics such as “volatility”, & “weighting different time