Reading Assignments: Indicators

TA & Algo Trading Course
#581
  1. What is MACD and how is it used?

MACD is an oscillating indicator which means it fluctuates above and below a centerline and helps the trader to identify short term momentum in the direction the price is currently moving. It may be used as a trend following tool or as a momentum indicator. There are several MACD signals that the trader can use along with other indications to plan a trade and open a position, like when the MACD lines move above or below 0 or when the MACD line crosses above or below the signal line. MACD can also be used to find divergences through the histogram and the price action and also to make inferences about the price being overbought or oversold in conjunction with other indicators like the RSI.

  1. What is the difference between MACD and RSI?

The difference between the MACD and RSI is that the former oscillates around a zero centerline (above and below) and the latter oscillates between a range that goes from 0 to 100, thus providing different signals. While MACD can help the trader to identify momentum, the RSI indicates when the price could be overbought and oversold.

  1. What is OBV and how is it used?

The On Balance Volume measures cumulative buying or selling pressure through volume behavior in a specified period of time. The trader can use this indicator to evaluate the continuation of a trend or if the trend might be arriving to it’s top (bottom) in combination with the price action, so it is useful to find divergences between the indicator and the price of an asset.

#582

1.What is MACD and how is it used?

The MACD is made up of two moving averages, which are based on two different time periods.

It is used to indicate points on a chart where the trend might be changing.

This can be determined when the two moving averages cross on the histogram; this can indicate an entry or exit signal for traders.

A MACD has two lines—a fast line and a slow line. A buy signal occurs when the fast line crosses through and above the slow line. Above zero and sustained on the histogram is considered to be in an uptrend;

A sell signal occurs when the fast line crosses through and below the slow line. Below zero and sustained on the histogram is a signal of a downtrend.

2.What is the difference between MACD and RSI?

The MACD helps understand in which direction the trend might be going.

The RSI provides signals as to when there could be a potential shift in the trend.

MACD utilizes two moving averages for indication of trading signals,

RSI uses overbought/oversold indicators to help determine trading signals.

A simple strategy using the RSI indicator is to place a buy close to oversold conditions when the trend is up and place a short near an overbought condition in a downtrend.

Example;

“Long-trade” signal is indicated when the RSI moves below 50 and then back above it.

“Short-trade” signal is indicated by the RSI moving above 50 and then back below it.

3.What is OBV and how is it used?

The OBV volume confirms trends by using a single one-line indicator.

The indicator measures cumulative buying and selling pressure by adding the volume on “up” days and subtracting volume on “down” days.

A rising price should be accompanied by a rising OBV;

A falling price should be accompanied by a falling OBV.

If OBV is rising and the price isn’t, it’s likely that the price will follow the OBV in the future and start rising.

If the price is rising and OBV is flat-lining or falling, the price may be near a top.

If the price is falling and OBV is flat-lining or rising, the price could be nearing a bottom.

#583

  1. What is MACD and how is it used?
    moving average convergence divergence is both a trend and momentum indicator.

  2. What is the difference between MACD and RSI?
    MACD indicates trends and momentum and RSI indicates the strength of the potential movement.

  3. What is OBV and how is it used?
    on-balance volume and show the strength of price movement by using volume of movement of underlying asset.

#584

  1. What is MACD and how is it used?

    The MACD is an oscillator indicator used to identify trends and potential buy or sell signals. If the MACD lines are above zero for an extended period, it suggests the instrument is trending upward, potentially signaling a buy. If they are below zero for some time, the trend is likely downward, potentially signaling a sell. Line crossovers are also important, with a possible buy signal when the fast line crosses above the slow line, and a sell signal when the fast line crosses below the slow line.

  2. What is the difference between MACD and RSI?

    While both MACD and RSI are oscillator indicators, the RSI specifically shows when an instrument is overbought or oversold, signaling a potential trend reversal.

  3. What is OBV and how is it used?

    The OBV is an indicator that compiles volume data into a single line. It is used to confirm trends; a rising price should be accompanied by rising OBV, and a falling price should be accompanied by falling OBV.