Page 63 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

oscillator has two lines, the %K and %D, where the former measures momentum and
the latter measures the moving average of the former. The %D line is more important of
the two indicators and tends to produce better trading signals.

Stochastic Overbought Signals – Source: StockCharts.com - The stochastic oscillator
generally uses the past 14 trading days in its calculations, but as with any indicator, can
be adjusted by traders to meet their needs.

Moving Average Convergence/Divergence

The moving average convergence-divergence (MACD) is one of the most powerful and
well-known indicators in technical analysis. The indicator is comprised of two
exponential moving averages that help measure momentum in a security. The MACD is
simply the difference between these two moving averages plotted against a centerline,
where the centerline is the point at which the two moving averages are equal. The
exponential moving average of the MACD line itself is also plotted on the chart.
The MACD compares short-term momentum and long-term momentum to signal the
current direction of momentum rather than the direction of price. Traders can think of it
as the ‘derivative’ of price-based moving averages.

When the MACD is positive, it signals that the short-term moving average is above the
long-term moving average and the security’s momentum is upward. The opposite is true
when the MACD is negative, which signals that the short-term moving average is below
the longer-term average and suggests downward momentum.

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