While looking at a stock graph there are several characteristics, which serve as indicators to help your predictions of where the stock is going....
First...MACD or the moving average convergence/divergence....It shows the difference between a fast and slow exponential moving average (EMA) of closing prices. MACD is a trend following indicator, and is designed to identify trend changes. It's generally not recommended for use in ranging market conditions. Three types of trading signals are generated,
* MACD line crossing the signal line
* MACD line crossing zero
* Divergence between price and MACD levels
When using the signal line corssing, you buy when the MACD crosses above this line, or sell when below. These occur very frequently, however, so other tests may need to be applied.
When the MACD line is up through zero, the stock may be seen as bullish. On the contrary, when the MACD is down below zero, it may be seen as bearish.
Positive divergence between MACD and price arises when price makes a new selloff low, but the MACD doesn't make a new low, ie. it remains above where it fell to on that previous price low. This is interpreted as bullish, suggesting the downtrend may be nearly over. Negative divergence is the same thing when rising, ie. price makes a new rally high, but MACD doesn't rise as high as it did before; this is interpreted as bearish.
Next...OBV or On Balance Volume....this indicates the cumulative total volume. Compared to a previous day's close, volume that is higher will yield a positive OBV and volume that is lower will yield a negative OBV.
Then...RSI or Relative Strength Index.... compares the days that a stock finishes up and when it finishes down. When using momentum trading the RSI indicator is extremele useful. In reading a RSI graph, a stock around the 70 level is considered overbought, and investors tend to sell. However, when there is a bull market some believe that this number should be raised to 80 to indicate an overbought stock. Contrary, when the RSI is around 30, the stock is considered to be oversold, and most use this as an indicator to buy. In a bearish market, this number is reducd to 20.
Lastly...DMI or Directional Movement Indicator....used to calculate and plot the directional indicators. There are three lines associated with the DMI index, the +DI, -DI, and the ADX. Ideally, a DMI is most profitable when dealing with a highly volatile stock as to make money from its daily swings. When the +DI crosses above the -DI and the ADX is turning from a convex, concave position indicates a bullish stock. Conversely when the -DI crosses above the +DI and the ADX is turning from either a convex or concave position indicates a bearish stock.
Hope this helps a bit...and look out for our stock picks tomorrow.
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,Moving Average Convergence Divergence
, Relative Strength Index
, On Balance Volume
, Directional Movement Indicator