indicators used to measure main factors surrounding price
there are 4 main key elements in market price action that i have come across. these help traders/investors determine many crucial factors of price like strength, direction, motion, even speed.
these are : momentum, trend, volume and volatility.
in this idea I will be explaining these price forces and the different types of indicators/tools used to measure them.
1. MOMENTUM -
this is the strength /intensity behind price movement or simply the speed at which price is changing. this helps traders/investors capitalize on market volatility. this is a very important price factor for breakout traders.
types of momentum indicators :
- THE RELATIVE STRENGTH INDEX, this indicator is used it bear and bull markets by measuring recent price changes with levels from 0-100. levels below 30 indicate oversold market conditions indicating bullish strength, and levels above 70 signal overbought market conditions indicating sell bias and 50 is a balance between the two.
- AVERAGE DIRECTIONAL INDEX, this unlike other momentum indicators measures the strength of current market direction rather than determining whether the market strength is bullish/bearish. it is measured between 0 to 100 with level below 25 indicating weak trend, 25-50 strong trend, 50-75 very strong, 75-100 very strong trend.
other momentum indicators include - stochastic oscillator, MACD, commodity channel index
2.TREND -
this is the overall direction of an asset price, either up, down and sideways.
types of trend indicators
-moving average, this is the average closing price of an asset over a certain period of time, when price is trading above the moving average price is said to be in an uptrend and if trend is trading below it is in a downtrend.
-trendline, this is a price line that is formed by connecting price highs and lows, if price is forms a full OHLC candlestick above bearish trendline connecting lower lows and lower highs it indicated change in trend from bearish to bullish and vice-versa.
3. VOLATILITY -
this is the the degree of variation in relation to an average price level or rate at how price fluctuates. it provides market opportunities as the more price changes the more investors/traders can capitalize on these price changes.
types of volatility indicators
-average true range, this indicator measure volatility over a certain period of time by moving up and down based on significant noticeable price changes calculated by subtracting previous close from current high, previous close from current low and current low from current high. do this continuously to get average of true ranges.
-bollinger bands- this consists of 3 lines, a simple moving average , upper band and lower band. when the market becomes more volatile the bands widens and low levels of volatility the bands loosen or contract.
other volatility indicators include : relative volatility index, average directional movement index.
4.VOLUME -
this is the number of contracts exchanged or trades for a certain asset in a period of time, this can help traders/investors determine strength and direction of trend.
types of volume indicators
-MONEY FLOW INDEX, this indicator measures the flow/direction of money in and out of a particular asset class over a specified period of time. positive money flow is the total of positive numbers , if today's price is greater than yesterday's price it indicates positive money flow and vice versa, this is to measure volume of rising and falling periods.
-ON BALANCE VOLUME, this measures bearish and bullish pressure by adding volume of bull days and subtracting volume of bearish days it can be calculated in a simple formula : if today's closing price is higher than yesterday's closing price it goes like, Current OBV = PREVIOUS DAY + today's volume and subtract today's volume if today's closing price is lower than yesterdays' price.
hope this information helps/improves your trading/investing.
put together by Pako Phutietsile ( @currencynerd )
these are : momentum, trend, volume and volatility.
in this idea I will be explaining these price forces and the different types of indicators/tools used to measure them.
1. MOMENTUM -
this is the strength /intensity behind price movement or simply the speed at which price is changing. this helps traders/investors capitalize on market volatility. this is a very important price factor for breakout traders.
types of momentum indicators :
- THE RELATIVE STRENGTH INDEX, this indicator is used it bear and bull markets by measuring recent price changes with levels from 0-100. levels below 30 indicate oversold market conditions indicating bullish strength, and levels above 70 signal overbought market conditions indicating sell bias and 50 is a balance between the two.
- AVERAGE DIRECTIONAL INDEX, this unlike other momentum indicators measures the strength of current market direction rather than determining whether the market strength is bullish/bearish. it is measured between 0 to 100 with level below 25 indicating weak trend, 25-50 strong trend, 50-75 very strong, 75-100 very strong trend.
other momentum indicators include - stochastic oscillator, MACD, commodity channel index
2.TREND -
this is the overall direction of an asset price, either up, down and sideways.
types of trend indicators
-moving average, this is the average closing price of an asset over a certain period of time, when price is trading above the moving average price is said to be in an uptrend and if trend is trading below it is in a downtrend.
-trendline, this is a price line that is formed by connecting price highs and lows, if price is forms a full OHLC candlestick above bearish trendline connecting lower lows and lower highs it indicated change in trend from bearish to bullish and vice-versa.
3. VOLATILITY -
this is the the degree of variation in relation to an average price level or rate at how price fluctuates. it provides market opportunities as the more price changes the more investors/traders can capitalize on these price changes.
types of volatility indicators
-average true range, this indicator measure volatility over a certain period of time by moving up and down based on significant noticeable price changes calculated by subtracting previous close from current high, previous close from current low and current low from current high. do this continuously to get average of true ranges.
-bollinger bands- this consists of 3 lines, a simple moving average , upper band and lower band. when the market becomes more volatile the bands widens and low levels of volatility the bands loosen or contract.
other volatility indicators include : relative volatility index, average directional movement index.
4.VOLUME -
this is the number of contracts exchanged or trades for a certain asset in a period of time, this can help traders/investors determine strength and direction of trend.
types of volume indicators
-MONEY FLOW INDEX, this indicator measures the flow/direction of money in and out of a particular asset class over a specified period of time. positive money flow is the total of positive numbers , if today's price is greater than yesterday's price it indicates positive money flow and vice versa, this is to measure volume of rising and falling periods.
-ON BALANCE VOLUME, this measures bearish and bullish pressure by adding volume of bull days and subtracting volume of bearish days it can be calculated in a simple formula : if today's closing price is higher than yesterday's closing price it goes like, Current OBV = PREVIOUS DAY + today's volume and subtract today's volume if today's closing price is lower than yesterdays' price.
hope this information helps/improves your trading/investing.
put together by Pako Phutietsile ( @currencynerd )
Comment:
The indicators and tools mentioned here are not the only ones used to measure momentum, trend, volume and volatility. Please comment with the indicators you use to determine them.
