Non Random Walk.com
Technical Indicators In The Trade-A-Stock App
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1.Average True Range
This is a measure how much the stock truly moves, on average, each day. The key to this measure is that it includes gaps in the stock price from day to day. Two good sites for how to calculate are:
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2. Average True Range Oscillator / Keltner Channels
This is our own custom variation on Keltner channels. For how to calculate Keltner Channels, click here. Our variation is that instead of using the Exponential Moving Average, we use the Smooth Moving Average. Furthermore, we do not plot the information as an overlay, but rather as a separate technical indicator chart. The chart plots how far the stock’s closing price has moved from its average, as measured by ATR distance. For example: ( Closing Price - SMA(10) ) / ATR(20), where the Smooth Moving Average is calculated for the past 10 days and the Average True Range is for the last 20 days.
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3. Bollinger Bands, Bollinger Bandwidth, %B (Percent B)
This is a set of related technical indicators based on using a moving average and the standard deviation.
StockCharts - Bollinger Bandwidth
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4. Donchian Channels (Price Channels)
Price channels, often called Donchian channels, after Richard Donchian who first popularized their use. These are excellent tools for identifying the beginning of a trend.
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5. Exponential Moving Average ( EMA )
This is similar to the Smooth Moving Average, but it more responsive to recent price movements.
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6. Moving Average Convergence Divergence ( MACD )
This indicator captures the speed and momentum of price changes. It works because the momentum of stock prices changes before price.
Note, Trade-A-Stock does not normalize the MACD.
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7. Relative Strength Indicator ( RSI )
The RSI is excellent for capturing momentum and the speed of price movements.
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8. Smooth (Simple) Moving Average ( SMA )
There are some variations on what prices to use in the calculation of the Smooth Moving Average, we use the most basic, the closing price of the day.
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9. Stochastic Oscillators
This is perhaps the most valuable technical indicator in terms of consistency. However, it can be quite wrong when a trend begins.
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10. True Range
This is a measure of how much a stock moves in a given day, accounting for day to day gaps in price.
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11. Volatility ( a.k.a. Historical Volatility )
We use the volatility calculation associated with the Nobel-price winning Black-Scholes option pricing model. This is the standard used in Finance literature. The calculation is based on a lognormal distribution of option prices, as opposed to the typical standard deviation associated with the normal distribution. Using a log normal distribution better represents real life, as stock prices cannot go below zero in price.
Wikipedia - Volatility Mathematical Calculation
Note, this is different than the StockCharts.com definition of volatility.
Also, the Trade-A-Stock application allows you to plot multiple volatility series on the same chart, allowing you to compare volatility over the short term to that of the longer term.
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1.Average True Range
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2.Average True Range Oscillator
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3.Bollinger Bands / Bollinger Bandwidth / Percent B (%B)
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4.Donchian Channels ( Price Channels )
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5.Exponential Moving Average (EMA)
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6.Moving Average Convergence Divergence (MACD)
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7.Relative Strength Indicator (RSI)
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8.Smooth Moving Average (SMA)
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9. Stochastic Oscillator
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10. True Range
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11. Volatility
Calculating technical indicators ( and how to use them ) is a topic well-covered by other websites, books, etc. So, we have identified a couple of good references on each topic and only offered clarity on those indicators where we feel it is necessary. We suggest you read several sources on how to interpret these indicators, as not all technical analysts are in agreement. To resolve any inconsistencies, try using the Trade-A-Stock application and find out what works for you. That is why we built it.
Questions? Comments? We’d love to hear from you. Contact Us