CHART  INDICATORS / OVERLAYS

     

GLOSSARY

Moving Average Convergence / Divergence - MACD

The Moving Average Convergence/Divergence indicator (MACD) is calculated by subtracting the value of a 26-period exponential moving average from a 12-period Exponential moving average (EMA). A 9-period exponential moving average (the "signal line") of the difference between the 26 and 12 period EMA is used as the signal line.

A positive MACD indicates that the 12-day EMA is trading above the 26-day EMA. A negative MACD indicates that the 12-day EMA is trading below the 26-day EMA.

If MACD is positive and rising, then the gap between the 12-day EMA and the 26-day EMA is widening. This indicates that the rate-of-change of the faster moving average is higher than the rate-of-change for the slower moving average. Positive momentum is increasing and this would be considered bullish.

If MACD is negative and declining further, then the negative gap between the faster moving average (black) and the slower moving average (red) is expanding. Downward momentum is accelerating and this would be considered bearish.

The basic MACD trading rule is to sell when the MACD falls below its 9 day signal line and to buy when the MACD rises above the 9 day signal line. Traders sometimes vary the calculation period of the signal line and may use different moving average lengths in calculating the MACD dependent on the security and trading strategy.
 

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Average Directional Index (ADX)

ADX evaluates the strength of the current trend, be it up or down. It's important to determine whether the market is trending or trading (moving sideways), because certain indicators give more useful results depending on the market doing one or the other. ADX is an oscillator that fluctuates between 0 and 100. Even though the scale is from 0 to 100, readings above 60 are relatively rare. Low readings, below 20, indicate a weak trend and high readings, above 40, indicate a strong trend.

The indicator does not grade the trend as bullish or bearish, but merely assesses the strength of the current trend. A buy signal occurs when +DI moves above -DI and a sell signal when -DI moves above the +DI.
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Relative Strength Index(RSI)

RSI is an indicator for overbought / oversold conditions. It is going up when the market is strong, and down, when the market is weak.

The oscillation range is between 0 and 100.Generally, if the RSI rises above 30 it is considered bullish for the underlying stock.

Conversely, if the RSI falls below 70, it is a bearish signal. The centerline for RSI is 50. Readings above and below can give the indicator a bullish or bearish tilt.

Stocks can stay oversold or overbought for long periods of time. Therefore, if RSI has crossed the 30 or 70 "boundary", no action should be taken until it has re-crossed it in the opposite direction. For example, if RSI falls below 30, do not buy until the indicator has come back above that level.

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Commodity Channel Index
Commodity Channel Index (CCI) measures the position of price in relation to its Moving average. This can be used to highlight when the market is overbought/oversold or to signal when a trend is weakening.
  • The indicator is similar in concept to Bollinger Bands but is presented as an indicator line rather than as overbought/oversold levels.
  • CCI can be used to identify overbought and oversold levels. A share would be deemed oversold when the CCI dips below -100 and overbought when it exceeds +100.
  • From oversold levels, a buy signal might be given when the CCI moves back above -100. From overbought levels, a sell signal might be given when the CCI moved back below +100.
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    Directional Movement Index
     
    Directional movement is a system for providing trading signals to be used for price breaks from a trading range. The system involves 5 indicators which are the Directional Movement Index (DX), the plus Directional Indicator (+DI), the minus Directional Indicator (-DI), the average Directional Movement (ADX) and the Directional movement rating (ADXR).

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    Average True Range
     
    The Average True Range indicator is used for determining the volatility of the security. The idea is to replace the high - low interval for the given period, as the high-low does not take into consideration gaps and limit moves.
     

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    Volume
     
    The number of shares or contracts traded in a security or an entire market during a given period of time. It is simply the amount of shares that trade hands from sellers to buyers as a measure of activity.
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    Stochastic Oscillator
     
    Stochastic Oscillator is a measure of the relative momentum of current prices to previous closing prices within a given interval. When it is plotted, it is two lines that move within a range of 0 and 100. Values above 80 are considered to be in overbought territory giving an indication that a reversal in price is possible. Values below 20 are considered oversold and again are an indication that a reversal of the price trend is a higher risk. In a strong trending environment, the Stochastic Oscillator can stay in overbought or oversold territory for some time while price continues in a single direction.

    The Stochastic Oscillator has two components: %K (black) and %D (red). The most widely used method for interpreting the Stochastic Oscillator is to buy when either component rises above 80 or sell when either component falls below 20. Another way to interpret the Stochastic Oscillator is to buy when %K rises above %D, and conversely, sell when %K falls below %D. The indicator is considered bullish, when above 80, and bearish, when below 20.

     

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    Stochastic RSI
     
    Stochastic-RSI is an oscillator that measures the level of RSI relative to its range, over a set period of time. The indicator uses RSI as the foundation and applies to it the formula behind Stochastics. The result is an oscillator that fluctuates between 0 and 1. Stochastic-RSI measures the value of RSI relative to its high/low range over a set number of periods.

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    Fast Stochastic
     
    The Stochastic Oscillator is a measure of the relative momentum of current prices to previous closing prices within a given interval. When it is plotted, it is two lines that move within a range of 0 and 100. Values above 80 are considered to be in overbought territory giving an indication that a reversal in price is possible. Values below 20 are considered oversold and again are an indication that a reversal of the price trend is a higher risk. In a strong trending environment, the Stochastic Oscillator can stay in overbought or oversold territory for some time while price continues in a single direction. In relation to a longer term price trend environment, the stochastic provides little interest.

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    Slow Stochastic
     
    The Slow Stochastic applies further smoothing to the Stochastic oscillator, to reduce volatility and improve signal accuracy.

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    Rate of Change (ROC)
     
     

    Price Rate-of-Change (ROC) is a refinement of Momentum - readings fluctuate as percentages around the zero line. The indicator is designed for use in ranging markets - to detect trend weakness and likely reversal points. However, when combined with a trend indicator, it can be used in trending markets.

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    Price Volume Indicator
     
    On Balance Volume - Volume is the number of shares or contracts that change ownership over a given period of time. It is an indication of supply and demand that is independent from price and can relate a great deal about the relative enthusiasm of buyers and sellers in the market place. On Balance Volume is one indicator that is designed to track changes in volume over time. It is the running total of volume calculated in such a way as to add the day's volume to a cumulative total if the day's close was higher than the previous day's close and to subtract the day's volume from the cumulative total on down days. The assumption is that changes in volume will precede changes in price trend.
    Another use of On Balance Volume (OBV) is to look at the trend in the indicator. A rising trend in the OBV gives sign of a healthy move into the security. A doubtful trend, or sideways trend in the OBV leaves price trend suspect and a candidate for a reversal of the trend. A falling OBV trend signals an exodus from the security despite price activity and leads to the caution that price may follow if it is not already. As indicated on the graphs above, look for divergences between the price and the OBV indicator. Divergences between the peaks warns of a potential fall in prices. Divergences between the troughs warns of a potential rise in prices.
     

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    Triple Exponential
     
    Triple Exponential is a momentum indicator that displays the percent rate-of-change of a triple exponentially smoothed moving average of the security's closing price. It is designed to keep you in trends equal to or shorter than the number of periods you specify.

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    William %R
     
    It is working by identifying the overbought / oversold levels. The scale extends from 0 to -100.The overbought level is considered 0 to -20, and oversold -70 to -100.As a confirmation signal, we can wait for the indicator to cross the -50 line.

    It is important to remember that overbought does not necessarily imply time to sell and oversold does not necessarily imply time to buy. A security can be in a downtrend, become oversold and remain oversold as the price continues to trend lower. Once a security becomes overbought or oversold, traders should wait for a signal that a price reversal has occurred. One method might be to wait for Williams %R to cross above or below -50 for confirmation. Price reversal confirmation can also be accomplished by using other indicators or aspects of technical analysis in conjunction with Williams %R.

    One method of using Williams %R might be to identify the underlying trend and then look for trading opportunities in the direction of the trend. In an uptrend, traders may look to oversold readings to establish long positions. In a downtrend, traders may look to overbought readings to establish short positions.


     

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    Accumulation / Distribution
     
    The Accumulation/Distribution is a momentum indicator that associates changes in price and volume. The indicator is based on the premise that the more volume that accompanies a price move, the more significant the price move.

     

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    Moving Average (MA)
     
    Moving averages are used to emphasize the direction of a trend and to smooth out price and volume fluctuations. Typically, upward momentum is confirmed when a short-term average crosses above a longer-term average. Downward momentum is confirmed when a short-term average crosses below a long-term average..

     

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    Simple Moving Average (SMA)
     
    Simple Moving Averages (SMA) are used to help identify the trend of prices. By creating an average of prices, that "moves" with the addition of new data, the price action on the security being analyzed is "smoothed". The Simple Moving Average is simply an average of values over a specified period of time.

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    Exponential Moving Average (EMA)
     
     

    Exponential Moving Average (EMA) is type of moving average that is similar to a simple moving average, except that more weight is given to the latest data. It is calculated by adding a percentage of yesterday's moving average to a percentage of today's closing value. This type of moving average reacts faster to recent price changes than a simple moving average. The 12- and 26-day EMAs are the most popular short-term averages, and they are used to create indicators like the moving average convergence divergence (MACD) and the percentage price oscillator (PPO). In general, the 50- and 200-day EMAs are used as signals of long-term trends.


     

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    Volatility Ratios
     
    Average True Range - The Average True Range indicator  is used  for determining the volatility of the security. The idea is to replace the high - low interval for the given period, as the high-low does not take into consideration gaps and limit moves.

    Chaikin's Volatility - Marc Chaikin measures volatility as the trading range between high and low for each period. This does not take trading gaps into account as Average True Range does.

    Aroon - The Aroon indicator system consists of two lines, 'Aroon(up)' and 'Aroon(down)'. It takes a single parameter which is the number of time periods to use in the calculation. Aroon(up) is the amount of time (on a percentage basis) that has elapsed between the start of the time period and the point at which the highest price during that time period occurred. If the stock closes at a new high for the given period, Aroon(up) will be +100. For each subsequent period that passes without another new high, Aroon(up) moves down by an amount equal to (1 / # of periods) x 100.

     

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    Fibonacci
     
     

    The Fibonacci technical indicator measures the distance between a high and a low or between a low and a high. It divides this distance into levels. The most used levels are 0% , 38.2% , 50% , 61.2% and 100% of the distance of the rise to the top or fall to the bottom.

     

     

    As such, the Fibonacci Retracements theory, expects that a share’s price would retrace (i.e. get back or return) its initial rise-distance or fall-distance. The most popular retracements are 38.2% , 50% , 61.2% and 100% of the previous movement (leg). These retracments are considered resistance or support levels depending whether the present movement is upwards or downwards.

     

    When the price is rising, the Fibonacci Retracements would read from down to up i.e. 0% , 38.2% , 50% , 61.2% and 100%, while when the price is falling, they would read from up to down i.e. 100% , 61.2% , 50% , 38.2% , 0% . The values (price) of levels are the same in both directions but their names in % terms are opposite.

     

    The Fibonnaci indicator on ASMA Charts is an automatic and not manual as in other popular programs. In Manual Programs, the user can precisely point to the top and bottom of the preceding cycle or trend and then apply the result to the following cycle or movement. But in the Asma automatic Fibonacci indicator the levels are indicated on the last Top and Bottom and then the user has to project the same levels as resistance or support levels on the following cycle or trend.

     

    To eliminate confusion, we have removed the % label of each level and kept the value only.

     

    Also, we remind you when using the Fibonacci Indicator to increase or decrease the indicator number on the indicator label so as to ensure that it reaches the last top or bottom that you are interested in.

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    Linear Regression Channels
     
     

    A statistical measure that attempts to determine the strength of the relationship between one dependent variable  and a series of other changing variables. Linear regression uses one independent variable to explain and/or predict the outcome.
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    Zig Zag
     

    Zig Zag  is trend following indicator that helps define what the trend has been, and can be used as a significance test to help determine when changes in the current price might indicate when the trend of price might be changing. The zig zag indicators filters out changes in a data item that are less than a specific amount that you define.

    The ZigZag can be used to measure retracements. After an advance, it is common for a security to retrace a portion of its advance with a correction. After a decline, it is common for a security to retrace part of its decline with a reaction rally. According to Dow Theory, 1/3, 1/2 and 2/3 retracements are most likely. Based on Fibonacci numbers, 38.2% or 61.8% retracement levels are deemed significant.
     

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    Price Oscillator (PPO)
     

    An indicator which attempts to assess the momentum of price activity by the use of two or more moving averages, for a predefined time frame period.
     

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    Support / Resistance
     

    Support : The price level which, historically, a stock has had difficulty falling below. It is thought of as the level at which a lot of buyers tend to enter the stock. Often referred to as the "support level".

    Resistance : The price at which a stock or market can trade, but which it cannot exceed, for a certain period of time. Often referred to as "resistance level".

     

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    Chaikin Money Flow
     

    Chaikin Money Flow - oscillator is calculated from the daily readings of the Accumulation/Distribution Line. The basic premise behind the Accumulation Distribution Line is that the degree of buying or selling pressure can be determined by the location of the close relative to the high and low for the corresponding period (Closing Location Value). There is buying pressure when a stock closes in the upper half of a period's range and there is selling pressure when a stock closes in the lower half of the period's trading range. The Closing Location Value multiplied by volume forms the Accumulation/Distribution Value for each period.

     

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    Parabolic SAR
     
    Parabolic Stop and Release (SAR) is a trend following indicator that is designed to create a trailing stop. This is a point that follows a prevailing trend, giving a possible value for a stop loss order that is far enough away from the original trend to avoid being stopped out with a small consolidation and retraction moves. The trailing stop moves with the trend, accelerating closer to price action as time passes giving the path of the indicator a parabolic look. When price penetrates the SAR a new calculation is started taking the other side of the market with an initial setting that again allows a certain amount of initial volatility if the trend is slow to get underway. If the trend is up, buy when the indicator moves below the price. If the trend is down, sell when the indicator moves above the price.


     

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    Ultimate Oscillator
     

    Developed by Larry Williams and first described in a 1985 article for Technical Analysis of Stocks and Commodities magazine, the "Ultimate" Oscillator combines a stock's price action during three different time frames into one bounded oscillator. Values range from 0 to 100 with 50 as the center line. Oversold territory exists below 30 and overbought territory extends from 70 to 100.
     

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    Bollinger Bands
     

    Bollinger Bands are types of envelops that are plotted at a fixed percentage above and below the moving averages. They are calculated using standard deviations instead of shifting bands by a fixed percentage.

    Characteristics:
    a. Sharp price changes tend to occur after the bands (The two semi parallel green lines) tighten and become narrower and volatility lessens.

    b. When the price moves outside the bands, a continuation of the trend in that direction is implied.

    c. Bottom/Tops that happen outside the bands and are then followed by Bottoms/Tops made inside the bands are usually and indication of a change and reversal in the present trend.

    d. Moves that originate at one band (Lower or higher) tend to go all the way to the other band. This observation is useful when forecasting price targets.

    Interpretation:
    Bollinger Bands can be imposed over an actual price or another indicator. When prices rise above the upper band or fall below the lower band, a change in direction may occur when the price penetrates the band after a small reversal from the opposite direction.


     

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    Percentage Volume Oscillator
     

    The Percentage Volume Oscillator (PVO) is the percentage difference between two moving averages of volume.
     

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    Envelopes
     
    An envelope is comprised of two moving averages. One moving average is shifted upward and the second moving average is shifted downward.

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    Money Flow Index (MFI)
     
    (MFI) is a momentum indicator which it is volume-weighted, and is a measure of the strength of money flowing in and out. It compares "positive money flow" to "negative money flow" to create an indicator that can be compared to price in order to identify the strength or weakness of a trend. It is calculated using a 14 day period.

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    TRIX
     
    TRIX is a momentum indicator that displays the percent rate-of-change of a triple exponentially smoothed moving average of the security's closing price. It is designed to keep you in trends equal to or shorter than the number of periods specified. It can be used to anticipate turning points in a trend through its divergence with the security price. TRIX line crossovers with its "signal line" can be used as buy/sell signals as well.
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    AROON
     
    Aroon is an indicator system that can be used to determine whether a stock is trending or not and how strong the trend is.The Aroon indicator system consists of two lines, 'Aroon(up)' and 'Aroon(down)'.
    When Aroon(up) and Aroon(down) are moving lower in close proximity, it signals that a consolidation phase is under way and no strong trend is evident. When Aroon(up) dips below 50, it indicates that the current trend has lost its upward momentum. Similarly, when Aroon(down) dips below 50, the current downtrend has lost its momentum. Values above 70 indicate a strong trend in the same direction as the Aroon (up or down) is under way.
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    Keltner Channel
     
    A volatility based 'envelope' indicator that measures the movement of stocks in relation to an upper and lower moving-average band. This indicator, named after Chester W. Keltner, is used by sophisticated investors to predict the trend of the market. An overbuy occurs when prices move above the upper band, and an oversell occurs when prices move below the lower band .
     

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    Chaikin's Volatility
     
    Marc Chaikin measures volatility as the trading range between high and low for each period. This does not take trading gaps into account  

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    Accumulation Swing Index
     
    The Accumulation Swing Index (ASI) is a cumulative sum of the Welles Wilder’s Swing Index indicatorThe Accumulative Swing Index, based on the Swing Index, is a swing or wave system used to capitalize on breakout patterns. ASI is commonly used to confirm trendline breakouts on price charts.

    ASI was developed by Welles Wilder, Jr. as a simple swing system (even though the calculation itself is relatively complex), with signals generated by breakouts past previous highs or lows in the index. Trendlines drawn on the ASI chart are also used to confirm or deny trendline breakouts on a price chart. Any divergence between the Index and price should also be noted.

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    Directional Movement Index
     
    Directional movement is a system for providing trading signals to be used for price breaks from a trading range. The system involves 5 indicators which are the Directional Movement Index (DX), the plus Directional Indicator (+DI), the minus Directional Indicator (-DI), the average Directional Movement (ADX) and the Directional movement rating (ADXR). The system was developed J. Welles Wilder and is explained thoroughly in his book, New Concepts in Technical Trading Systems .

    The basic Directional Movement Trading system involves plotting the 14day +DI and the 14 day -DI on top of each other. When the +DI rises above the -DI, it is a bullish signal. A bearish signal occurs when the +DI falls below the -DI. To avoid whipsaws, Wilder identifies a trigger point to be the extreme price on the day the lines cross. If you have received a buy signal, you would wait for the security to rise above the extreme price (the high price on the day the lines crossed). If you are waiting for a sell signal the extreme point is then defined as the low price on the day's the line cross.

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    Chaikin Money Flow
     
    Developed by Marc Chaikin, the Chaikin Money Flow oscillator is calculated from the daily readings of the Accumulation/Distribution Line. The basic premise behind the Accumulation Distribution Line is that the degree of buying or selling pressure can be determined by the location of the close relative to the high and low for the corresponding period (Closing Location Value). There is buying pressure when a stock closes in the upper half of a period's range and there is selling pressure when a stock closes in the lower half of the period's trading range. The Closing Location Value multiplied by volume forms the Accumulation/Distribution Value for each period.

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    BIAS
     
    Show the distance of close and moving average.

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    Detrended Price Oscillator
     
    Detrended Price Oscillator compares closing price to a prior moving average, eliminating cycles longer than the moving average.

    The real power of the Detrended Price Oscillator is in identifying turning points in longer cycles:

    When Detrended Price Oscillator shows a higher trough - expect an upturn in the intermediate cycle;
    When Detrended Price Oscillator experiences a lower peak - expect a downturn.
     

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    Accumulation/Distribution
     
    The Accumulation/Distribution is a momentum indicator that associates changes in price and volume. The indicator is based on the premise that the more volume that accompanies a price move, the more significant the price move.


     

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    Momentum
     
    The Momentum is simply the difference between the current point (price or something else) and the point N periods ago.

    Usage:

    The rising line signals that the uptrend is getting stronger, the horizontal line at zero level means there is no trend, and falling line means the downtrend is getting stronger.

    The momentum can be used for identifying trends, overbought/oversold conditions and divergences.

     

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    Fast Stochastic
     
    The Stochastic Oscillator is a measure of the relative momentum of current prices to previous closing prices within a given interval. When it is plotted, it is two lines that move within a range of 0 and 100. Values above 80 are considered to be in overbought territory giving an indication that a reversal in price is possible. Values below 20 are considered oversold and again are an indication that a reversal of the price trend is a higher risk. In a strong trending environment, the Stochastic Oscillator can stay in overbought or oversold territory for some time while price continues in a single direction. In relation to a longer term price trend environment, the stochastic provides little interest. In its construction it is meant to relate the current periods momentum to the most recent previous periods of momentum in price in an attempt to identify periods where momentum may be easing or increasing. The easing (at a top) or increase (at a bottom) of momentum occurs at reversal points for the price trend being measured. However changing momentum also occurs during times when there is no change in the overall trend in prices and should be understood as a period when a reversal in price trend is possible but not guaranteed.

     

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    MASS Index
     
    The Mass Index was designed to identify trend reversals by measuring the narrowing and widening of the range between the high and low prices. As this range widens, the Mass Index increases; as the range narrows the Mass Index decreases.

    The Mass Index was developed by Donald Dorsey.
     

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    Vertical Horizontal Filter
     
    Vertical Horizontal Filter (VHF) was created by Adam White to identify trending and ranging markets. VHF measures the level of trend activity, similar to ADX in the Directional Movement System. Trend indicators can then be employed in trending markets and momentum indicators in ranging markets.

    Vary the number of periods in the Vertical Horizontal Filter to suit different time frames. White originally recommended 28 days but now prefers an 18-day window smoothed with a 6-day moving average.

     

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    Disclaimer