Technical Analysis for Financial Market - oscillators - page 2

The objective of the study is to investigate, whether a refined method of the MACD indicator can outperform a benchmark of holding a riskless security as a Treasury bond or holding the underlying asset, i.e., individual stocks of the NASDAQ-100. Thus, this study is challenging the random walk hypothesis.

Using an indicator by itself can reveal a portion of the entire picture. Combining it with another can reveal more. by Barbara Star, Ph.D. raders use technical indicators to recognize market changes. They look to indicators for signs of price direction, momentum shifts, and market volatility. Among the most sought-after indicators are those that identify price trends. Traditionally, moving averages serve that purpose, but they suffer from whipsaw action during price consolidations. However, there is another approach. This article shows how to combine two popular indicators to help traders detect not only trend direction but also trend strength. The indicators involved are the average directional index (ADX) and the moving average convergence/divergence (MACD). The ADX functions as a trend detector, rising as price strengthens into an identifiable trend and falling when price moves sideways or loses its trending power. ADX values in the 20 to 30 range indicate mild to moderate trending behavior, while values above 30 usually signify a strong trend. Unfortunately, the ADX does not reveal the trend direction. The MACD, on the other hand, indicates price momentum and can also be used to identify price direction as it rises above its trigger line or falls below its zero line. When both indicators are plotted on the same chart, trend strength and trend direction become clear. The chart of AOL Time Warner (AOL) in Figure 1 illustrates how the two indicators complement each other. The ADX in the upper panel rose from April through May 2001, indicating a trending market. The MACD rose above its dotted trigger line and its zero line, showing that price direction was up. During July and August the ADX rose once again, but the MACD was then below its trigger Stocks & Commodities V. 20:1 (22-25): Detecting Trend Direction And Strength by Barbara Star, Ph.D. Copyright (c) Technical Analysis Inc. line and its zero line, showing that a downtrend was in progress. Most traders prefer the long side of the market and look for an uptrending market. The confirming pattern identifies exactly that condition. When the ADX and MACD move up in unison, they confirm rising price direction; the Bristol-Myers Squibb Co. (BMY) chart in Figure 2 offers a good example of a confirming pattern. The ADX and MACD rose as price moved up strongly in September to December 2000. When price changed direction in January 2001, both the ADX and MACD followed suit. The falling ADX was not indicating that a downtrend had begun; merely that it no longer could find a trend. In this example, the MACD showed that price was retracing its prior upward march. But sometimes when both indicators fall, price forms a sideways trading range, rather than the more pronounced downward move seen in this chart.

This paper assesses the state of informational efficiency in stock markets of 75 countries around the world by empirically evaluating the economically relevance of a very popular technical analysis indicator, namely the Moving Average Convergence Divergence. There are many published papers that evaluate market efficiency around the world, but none looks at as many countries as this one does. In total, 1336 companies are selected in the sample, with temporal data starting January 1st 2001 and ending December 31, 2012. The methodology used here is based on trading simulation using an optimized trading rule that is applied on out of sample quotes. To be in accordance with the latest guidelines in the field, several statistical tests, including a bootstrap based one, are performed to validate the estimators, thus ensuring bias-free results and more relevant conclusions. Several important statements can be made based on the obtained results, the most important being that traders using the MACD as an technical analysis investment method on the stock market could some times and for certain companies obtain abnormal cost and risk adjusted returns, this pointing out that the world's stock markets present important inefficiencies.

Technical indicators have been widely used in the history of technical analysis of financial markets. In general, these indicators are used in order to summarize data from the market. Technical indicators are often difficult to understand for the non-experienced investor and graphical interpretations are exposed in order to help the understanding. In this paper, a hybrid sonification is presented for the Relative Strength Index as an aid to the understanding of this technical indicator. As a proof of concept, a prototype developed in a real-time sound synthesis language is presented. The prototype is used with data publicly available from a particular stock in the chilean market.

The relative strength index (RSI) is one of the best known and most widely used technical analysis indicators. In this paper, the study aim to empirically test the functioning of the RSI in its classic form, on a set of data and to reconfigure the indicator by also taking account of the trading volume in its calculation formula. After adjusting the RSI with the trading volume, the study will test its new form on the same set of data. Finally, it will compare the obtained results by applying the classic form of the indicator with those obtained by using the adjusted form. In future research, the study intend to analyse whether higher yields can be obtained by using the RSI compared to those which result from applying the buy and hold strategy.

This study compares returns from the traditional buy and hold (B&H) strategy to well-known technical oscillators applied to diverse indices leading the global market (DJI, FTSE, NK225 and TA100) during the period 2007-2012. Our aim was to establish whether technical tools can consistently achieve returns exceeding those of the B&H strategy across various financial markets. We found the relative strength index (RSI) to be the best oscillator, outperforming the DJIA, the FTSE100 and the NK225 for five of the six years examined. The only index that did better than the RSI was TA100, which outperformed all the examined oscillators. In second place was the moving average convergence/divergence (MACD) oscillator, which outperformed the NK225 B&H strategy and came in second for TA100. The results show that during bear markets the RSI and MACD generally produce better gains than the indices, while the opposite occurs during bull markets.