Week - 3 Swing Trading - Introduction to Technical Indicators

Welcome back to the Swing Trading – Week 3

Swing trading stocks begins with a hunt and the hunt goes on until you find the perfect one. There are many different ways you can hunt for stocks, using fundamentals or using technicals.  We are going to take the technical hunt, inorder to perform this hunt you need to understand every technical indicators you like to use. Lets jump right in……….

Technical indicators are broadly classified as Indicators (RSI, MACD, OBV, etc) and Overlays (SMA, EMA, KC, BB) (indicators are sometimes called as leading indicators, and overlays as lagging indicators FYI only).

Indicators can be classified as Momentum, Trend and Volume Indicators. Some Volatility Indicators are overlays on chart like the Bollinger Band.

Before we get into the details on indicators, I think it is my duty to give you the most important warnings.

·         Do not use Technical indicators as signal to Buy or Sell.

• Technical indicators measure price and/or volume “behavior”. The most newcomers often make mistake is treating them as buy or sell signals. Technical indicators are great for stock hunt, Buy and sell signals should be based on the price action.

Following table can give you a summary of all known Indicators and their functions.

Indicator		Function	Based on
ROCV	Rate of Change in Volume	Measures increase in Volume	Volume
VO	Volume Oscillator	Measures Trend in Volume	Volume
OBV	On Balance Volume	Measure the accumulation or distribution by comparing volume to price.	Closing Price and Volume
PVT	Price - Volume Trend	Measure the strength of price trends	Closing Price and Volume
-	Accumulation/Distribution	Measure the Price and Volume relative movements	Closing Price, Range and Volume
MFI	Money Flow Index	Measure the volume on green vs red days (RSI for Volume)	Closing Price, Range and Volume
CMF	Chaikin Money Flow	Measure the Price and Volume relative movements	Closing Price, Range and Volume
RSI	Relative Strength index	Strength of buyers and sellers in its current direction	Closing Price, previous closes
-	Aroon Indicator	Determines whether a stock is trending or not	High/Low
ADX	Average Directional Index	Measures the Strength of Trend	Closing Price, High/Low
TSI	True Strength Index	Smooth RSI version	EMA
-	Vortex Indicator	Identifies the start of a new trend.	High/Low
ParSar	Parabolic SAR	Measures reversal points based on High and Low price data	Closing Price, High/Low
SMA	Simple Moving Average	Measure of trend direction by smoothing price data	Closing Price
EMA	Exponential Moving Average	Measure of trend direction by smoothing price data	Closing Price
MACD	Moving Average Convergence and Divergence	Measures the distance between the two moving average lines	Moving Average
TRIX		Triple-smoothed exponential moving average of closing prices	Moving Average
CCI	Commodity Channel Index	Shows a price variation from its Moving Average.	Closing price, Moving Average
DPO	Detrended Price Oscillator	Compares closing price to a prior moving average	Closing price, Moving Average
Sto	Stochastic	Measures the Momentum based on closing price and MAs.	Closing Price, Range
-	Williams %R	Measures the Momentum based on closing price and MAs.	Closing Price, Range
-	Williams Accum/Dist	Measures Accumulation/Distribution without Volume	Closing Price, High/Low
-	Elder Ray Index	Measures buying and selling pressure in the market.	High/Low, Moving Average
ATR	Average True Range	Measures a stock's volatility	High vs Low
BB	Bollinger Band	Measures Volatility	Standard Deviation and SMA
KC	Keltner Channels	Overlay based on ATR	Average True Range, Multiplier
-	Ichimoku Cloud	Defines Support & Resistance, Trend, Momentum and Trading Signals	High/Low of various time periods
-	Pivot Points	Defines Support & Resistance	Closing Price, High/Low

You don’t need to know all the indicators in-depth. But having an in-depth knowledge on important indicators can help build a trading strategy.

For Example,

Let’s use Aroon Indicator, this indicator determines the trend, we can use this indicator to find stocks that are consolidating (can use this indicator to scan for many other trade ideas), using the following expressions on stockcharts.com

We will get in details about this indicator in later lessons.

Stockcharts advanced scan criteria.

[Daily Aroon Up(25) < 20] AND [Daily Aroon Down(25) < 20]

Using this scan, showing the 6 of 50 stocks result. 

SM	SM Energy Co.	NYSE	Energy	Exploration & Production
SSD	Simpson Mfg Co, Inc.	NYSE	Industrial	Building Materials
SYNA	Synaptics, Inc.	NASD	Technology	Computer Hardware
TKR	Timken Co.	NYSE	Industrial	Industrial Machinery
TSCO	Tractor Supply Co.	NASD	Cyclicals	Specialty Retailers
TXRH	Texas Roadhouse Inc.	NASD	Cyclicals	Restaurants & Bars

Note: I have not looked at these stocks charts yet, this is not a buy or sell recommendation.