Stochastic Trading Oscillator

The Stochastic Oscillator originally comes from George C. Lane. Its main parameter being measured is called %K and the formula for it is as follows:

%K = (RecentClose - LowestLow)/(HighestHigh-LowestLow)

As with most of the complex indicators it would be quite some task trying to compute and plot it on paper but with the modern online trading software it is very easy to utilize this indicator.

The Stochastic Oscillator is usually interpreted that when its value is about 80% then the market is considered bullish and when it is below 20% the market is considered to be bearish.

One of the most popular ways of trading with this oscillator is considering buying when the Stochastic is trending up and selling when it is trending down. It seems like an obvious thing but there are other more complicated ways of using it. But also as with all the indicators it is a good idea to use in in conjunction with others for gleaming a broader picture of what is going on.

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Fibonacci Trading Trendlines

There is another category of trendlines that I have not mentioned in the previous post because it is almost a whole world onto itself. And it is of course the Finconacci Trendlines.

As the history goes, the Fibonacci numeric properties in nature were first observed and classified by the Italian mathematician Leonardo Pisano Fibonacci (1170-1250). The Fibonacci numbers are 0, 1, 1, 2, 3, 5, 8, 13, 21, ... (each next number is derived by adding the previous two). Many forms in nature like pine cones, sea shells, leafs groupings, population spreads and much more, remarkably accurately corresponds to these number sequences. The Fibonacci sequencing has been also recently popularized in the best selling fictional book and movie The Da Vinci Code but anyhow here I will just outline how it is being used in investment charting.

There are basically four categories of the Fibonacci Trendlines. The first one is usually referred to as the Fibonacci Retracements. The theory there goes that when a low and a high of a given price move is concerned the price retraces a little before it continues resuming going in the same direction after bouncing off from usually one of the four main Fibonacci Retracement Levels being 38, 50, 62 and 79 percent of the main price move or wave. The theoretical target level of the bounce is 1.618 (that being one of the so called golden section numbers) of the initial price move when the price reverses from one of the first three levels here and 1.270 when it reverses after encountering the 79 percent one.

Of course the principle is far from perfect in describing all the live trading sittuations but these patterns show remarkably often enough to be a base of whole elaborate trading systems with thousands of followers using it in their trading practices. Also applying the fibonacci principles with the variety of available online trading and charting software it is immensly easier and faster then doing it by hand.

The second variation is called the Fibonacci Timelines. The idea here is much as before except that the price reversals are being mapped to the x or time chart axis instead of the price level or y axis and the fibs or fibo levels as these are often called, are here marked with vertical trendlines instead of the horizontal trendlines being used in the Fibonacci Retracements.

Next we have the Fibonacci Fans. Those are a bit trickier to explain but the idea basically is that the price reversal lines there are mapped to Fibonacci angles instead of levels. Hence the name 'fan' since all the lines there are fanning so to speak from one point where the given price motion on a chart originates.

And the last of the four is called Fibonacci Arcs or Fibonacci Arches. Here, beginning from the given original price point move, there are drawen concentric arcs and the placement of these is determined by the same percentage ratios as in the first of the Fibonacci retracements being discussed here.

Plotting of the horizontal Fibonacci retracement levels is by far the most common Fibonacci technique amidst the investment chartists although the other three ones can turn out quite handy as well.

Trading Trendline Indicators

Trendlines are very handy in charting and analyzing investment positions in both offline and online trading.

One of the simplest trendlines is a vertical trendline. This trendline is often used to simply denote the time of occurrence of a certain event relating to the chart, like a news release, market opening/closing, given time of the day or night and so on.

The other basic trendline is a horizontal trendline. It is often being used in marking a level which a price on a chart has reached and from which it has 'bounced' or reversed its direction. When a price reaches a horizontal trendline several times it forms what is commonly called a support trendline or a resistance trendline. The first one is formed when price rebounces few times on its way down, the second one is created when it does that on its way up. It is a popular believe that when such line is penetrated the likelihood of it continuing that way for some time increases with the length of that line or the number of times it was approached but did not penetrate it. And since many people observe that believe it becomes something visible on the price charts rather frequently and therefore can be utilized to one's financial advantage.

And one more commonly used variation of trend lines is slanted trendline. It behaves the same way as the horizontal trend line except that it runs at an angle.

Another common thing that happens with these trendlines is that it can go bouncing back and forth between a given support and resistance line. In such case it forms what is often referred to as price channel.

These are the most simple and perhaps the most usable ones as well. Other trend lines include curved ones like parabolic or logarithmic trendlines; such can get very complicated mathematically and personally I wouldn't even think of applying such without charting software. Fortunately these days many online trading software packages not only comes equipped with sophisticated charting and analysis software but often comes bundled in for free with online trading accounts.

Volume Price Trend Indicator - VPT

Volume Price Trend Indicator or VPT for short, is one of the simplest financial trending indicators. It is used to determine the balance between the financial instrument's supply and demand. The percentage change of the indicator relates to the supply/demand ratio while the volume itself reveals the magnitude of the changes at hand.

The VPT often spikes up in accelerated trading as when for example a rumor of a stock to go up is being spread. Some trading analysts claim to be banking on that when suddenly members of a given comany begin buying large amounts of their own company's stock. The reasoning there being that they might know something that the general public does not as for example in a case of upcoming positive news about the company to be released or an upcoming merger or acquisition by another company.

Generally Volume Price Indicator is an easy one to use in both offline and online trading. And perhaps because of its simplicity it is appaling to the widest range of traders, both amaterur and professional.

Moving Average Indicators

Moving Average is one of the most commonly used trading indicators. There are several variations of it.

Perhaps the most common one is the Simple Moving Average or SMA for short. It is being normally derived by adding closing prices of a market and then dividing it by the number of time periods involved. The process is repeated for each time period and resulting curves are usually much smoother then the given raw price charts.

For practical purposes, though, it might be too smooth at the end, therefore missing much of the most immediate price action dynamics. To remedy that comes the Exponential Moving Average or EMA for short ( also occassionaly called the Exponentialy Weighted Moving Average). Here the most recent price figures are being multiplied or 'weighted' resulting in a curve following the price action more closely.

Now, when these Average price indicators come handy is when those are plotted on the same chart with the lines corrsponding to different periods of price averaging. Often the intersections of these lines correspond to rapid price trend reversals and therefore hinting of possibly lucrative market entry/exit points.

I personally wouldn not try using this indicator offline - if I was to plot it out by hand, there is just too much math involved. But with today's widespread of online trading software with powerful charting features embeded in it - it is very easy to use these trading indicators much to one's advantage. What more these online trading software applications allow the indicators to be also used in moment by momen trading as in day trading or scalping, which would be practically impossible otherwise.

Trading Indicators

Trading Indicators are normaly certain parameters derived from previous trading activity data of a given financial venue at hand, such as a commodity, forex or stock. By extending the indicators' parameters into the future an insight can be gained as to the likely future behavior of such financial price action.

For the ease of use such data are often plotted on charts for a quick visual reference of what is going on. Some of the more common indicators include Volume, Moving Averages, Stochastics and Trendlines.

With today's online trading software a trader doesn't even have to know about the math behind such indicators. The data is often presented in the software with but a click of a mouse.

Welcome to Online Trading Journal!

Hello Everyone!

Here at Online Trading Journal I am going to be writing about all matters of online trading, trading news, investment brokers, trading strategies, what is hot and what is not and more.

May your online and offline trading be happy and very profitable. As a standard disclaimer I will just mention that anything written here does not constitute an investment advice or guarantee.

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