Charts

Charts MACD 1. MACD – moving average convergence divergence 2. Developed by Dr, Gerald Appel 3. Probably the most consistent indicator of significant trend changes is a stock 4. The most commonly used indicator in the world. 5. Looks at several price-average changes over time (short term). 6. It shows when the momentum pressure is getting stronger either upward or downward. 7. The MACD is the combination of two moving averages – a fast one and a slow one – and how they interact (how they converge and diverge). 8. It shows when institutional fund managers are sneaking in or sneaking out of a stock. 9. It uses moving averages (MAs). a. MA is the average of the price over some time period. b. The MA is recalculated every day after the closing prices are in. 10.Most MACDs use an exponential moving average (EMAs) to get a smoother line that takes out unnecessary bounces up and down. 11.The MACD uses three EMAs: a slow EMA, a fast EMA, and the “trigger” EMA. 12.Dr. Appel determined a. the best slow or long term period is the 26-day EMA b. the best fast or short term period is the 12-day EMA c. He calculates the difference between the two EMAs i. This number is the MACD plot point for that day. d. He then plots the 12-26 MACD for the day against the 9-day EMA. 13. When the MACD crossed above the 9-day EMA a. the stock was very likely to continue to go up in price 14. When the MACD crossed below the 9-day EMA a. the stock was likely to continue to go down 15.The crossing points are called “trigger points” 16. Thomas Aspray added a histogram that represents the variance between the 12-26 MACD and the 9-day EMA a. the 9-day EMA is represented by the “zero” line b. Trigger points are the points at which the histogram crosses the “zero” line. 17. Dr. Appel found that better results were achieved by using the “8-17-9” MACD. Stochastics 1. Developed by Dr. George C. Lane 2. A momentum tool that tracks the overbuying and overselling of a stock. 3. Overselling a. When a large institution starts selling and others join in. b. Creates downward pressure on the stock price.

c. Can generate a lot of short-term institutional concern (i.e. fear). d. Other institutional sellers wait until they think the stock is as low as it’s going to go and then start buying. e. When that happens the tool sees that and tells us when to buy. 4. There are two lines a “buy line” and a “sell line” 5. When the buy line crosses on top of the sell line: a. This signals too many sellers (oversold condition). b. Time to buy. 6. When the buy line crosses beneath the sell line: a. This signals an overbought condition or too many buyers b. Heading for an oversold condition. c. Time to sell. 7. The Stochastic looks as the high price and the low price of a stock over some period. 8. Dr. Lane’s though the 14 trading day period was the best. 9. The program rates the current day’s closing price sits in that range as a percentage. 10. A score of 57 means that in the range of zero to 100, today’s price was in the 57th percentile. 11. Research shows that when the stock moved up through the 20th percentile: a. institution buyers were starting to seriously buy b. the price was likely to go up as it came out of an oversold condition and moved to more normal trading. 12. Research shows that when the stock moved up through the 80th percentile: a. the stock was going into an overbought condition meaning i. too many buyers ii. not enough sellers 13. When the stock dropped below the 80th percentile it often meant a. Institutions we seriously taking profits b. The price was likely to drop 14.At MSN the Stochastic line is plotted against a 5-day EMA a. This provides trigger points when they cross b. The Stochastic provides a warning of a trend change a bit earlier than the 20th to 80th percentiles. 15.A moderate trading speed is preferred rather than a “fast” or “slow” Stochastic 16.A slow Stochastic gives off as many false signals as the fast one. 17.Choose a slow Stochastic with the following two numbers. a. A 14 trading day period. b. Use a five day moving average. 18. When the Stochastic line crosses up through the 20th percentile it’s a positive signal. 19. When the Stochastic line crosses down through the 80th percentile it’s a negative signal. a. That signal is usually preceded by a crossing of the 14- and 5-day lines as an early warning that change is in the wind. b. That is the buy sign. c. The 20th to 80th percentiles are just confirmations.

Moving Average 1. 2. 3. 4. 5.

This tool tracks an average of price during a specific time period. It smoothes the peaks and valleys of daily price fluctuations It gives a better view of price trends. Think as a floor or ceiling on the price. As price goes above the moving average: a. It is breaking through the psychological ceiling b. It is creating a new short-term high price c. It is a signal the attitude toward this stock has gotten positive. 6. As price goes below the moving average: a. It is breaking through the floor. b. The attitude of the market has turned negative. 7. Use the 10-day not the 50-day moving average because: a. It provides an early signal. b. The moving average is usually the last signal to say “Buy” or “Sell” c. By setting it to a fast speed it syncs up better with the other two tools.