Simple Moving Average (SMA). SMA is one of the moving average indicators that attempt to tone down fluctuations of price series into a smoothed trend. It is constructed by totaling a set of data and dividing the sum by the number of observations. The resulting number is known as the average. The average moves by repeating the process of adding a new item of data and subtracting the first item on the observation list. The number of observations in the calculation of an SMA value is known as the time period of SMA. Thus the formula for the SMA at time n (>=Period) is:
SMA(n) = (Price(0) + Price(1) + ... + Price(n-1) )/Period.
The 3 parameters for users of "Equity Analyzer" software to modify are Shift, Price, and Period.
Exponential Moving Average (EMA). EMA is a form of moving average that attempts to reduce the lag in SMA by introducing more weight to recent prices relative to older ones. The formula for the EMA at time n (>Period) is:
EMA(n) = ((Price(n) - EMA(n-1) ) x exponent + EMA(n-1), while EMA(period) = SMA(Period).
We provide 4 parameters for users of "Equity Analyzer" software to modify the EMA: shift, price, period, and exponent.
Moving Average Convergence Divergence (MACD). MACD uses two EMAs with the shorter EMA being subtracted by the longer EMA, and then is smoothed by a third EMA. The formula for the MACD at time n (>=max(L-period, M-period)+S-period) is:
MACD(n) = EMA(EMA-S-EMA-L, n), where EMA-S is the shorter EMA while EMA-L is the longer EMA.
Six parameters are defined in the "Indicator Dialog" of "Equity Analyzer" software for users to modify: L-period, L-expo, M-period, M-expo, S-period, and S-expo.
Relative Strength (RS). RS, also known as comparative relative strength, measures the relative strength of two securities. It is constructed by dividing the relative price of one security by another, then smoothing the result by an EMA. The denominator could be a market index such as NASDAQ. The relative price of a security is defined as the current price divided by the price of the first item in the observation list.
Relative Strength Index (RSI). RSI, introduced by Welles Wilder in 1978, measures the relative internal strength of a security against itself. It compares the recent gains of a security and its recent losses and turns that information into a number that ranges from 0 to 100. The formula for calculatig the RSI at time n for a daily chart is as follows:
RSI(n) = 100 - 100/(1+cmp(n)), where cmp(n) = (p days' up closes)/(p days' down closes)
Volume Accumulation Distribution (VAD). VAD, developed by Shan Technologies, reflects the money that flows into or out of a security by comparing the amount of shares traded at up times and down times. It is designed to alert traders before the reversal of stock prices by identifying early increases in positive or negative volume flow.
A stock can be viewed as under distribution if its VAD line goes down, or under accumulation if its VAD line goes up. A VAD under distribution for certain time may signal a downtrend and vice versa.
Price Chart. A price chart is a sequence of prices plotted on a specifi time scale. The time scales availabe with standard "Equity Analyzer" are "Daily", "Weekly", and "Monthly". On a daily price chart, the y-axis represents the price while the x-axis represents the time on a "Daily" scale (the time unit is one day).
Trendlines. Trendlines are based on assumption that prices move on trend. A trendline can be constructed by connecting two or more price points and then extending it into the future to act as support line or resistance line.
Support line. A trendline that is constructed by connecting two or more low price points. A support line is assumed to be strong enough that price would not deline below it.
Resistance line. A trendline that is constructed by connecting two or more high price points. A resistance line is assumed to be strong enough that price would not rise above it.
Uptrend line. A trendline that has a positive slope.
Downtrend line. A trendline that has a negative slope.
Candlestick chart. Candlestick charts are expressed by a sequence of candlesticks. A candlestick is formed using open, close, high and low prices of a security during a specific time period. The open and close prices are represented by a rectangular box while the high and low prices are represented by a thin line connecting the high and low prices. The box is called "body" while the thin line is called "shadow", or wick and tail.
When using "Equity Analyzer", the body of a candlestick is in red if open price is higher than close price, indicating higher selling pressure. On the other hand, the body is in green if close price is higher than open price, indicating higher buying pressure. The longer the body is, the stronger the buying or selling pressure is.
The thin line above the body is called upper shadow while the one below the body is called lower shadow. Long shadows indicate intense battles between buyers and sellers. A long upper shadow with short lower shadow indicates buyers gained a upper hand in the battle while a long lower shadow with short upper shadow indicates sellers dominated during the time period. Long shadows with small body, called spinning top, indicates buyers and sellers reached a balance and signals a possible price trend reversal.
Bar chart. A bar chart is formed by plotting a sequence of bars over a period of time. A bar in a bar chart represents the high, low, open and close prices for a particular session. The horizontal short bar to the left of a vertical bar represents the open price while the one to the left of the vertical bar represents close price of that session. The vertical bar represents the high and low prices of the session.
Line chart. A line chart is formed by connecting the price points over a period of time. Usually the price points connected in a line chart are the close price of each session.
Strategies. The "Strategy Designer" tool allows users to design, compare and evaluate almost all sophisticated investing strategies that are a combination of six basic activities such as "Buy stock", "Short stock", "Buy call", "Buy put", "Write call", and "Write put". Please go to http://www.cboe.com/LearnCenter/default.aspx to learn more about common strategies, and how the combination of the six basic activities create new strategies.