Igor

Theta is always negative because of the decrease in the value of the option over time. This is one factor that traders who hold option contracts, especially long contracts, should be aware of when positioning their trades.

The wave pattern is the basis of the use of the Elliot Wave indicator in technical analysis. Using wave patterns for trading enables a trader to buy on the dips and sell the rallies. In other words, a trader can buy at the end of a downwave and sell at the top of a wave crest. If the price depiction on a chart is done in the form of a line chart, we see that the price movement of the asset is not in a straight line but rather in a succession of crests and troughs as the market flows and ebbs, just like we see in an ocean wave being ridden on by surfers.

Typically, an increase in volume occurring in tandem with a price increase or decrease is seen as a significant indication of a trend reversal. A price change without an accompanying increase in trade volume is not usually a true indication of future price movement. Trade volume is a function of the size of the positions assumed by traders on the buy or sell side, as well as the number of traders making up these volumes. By looking at the volume changes in relation to the price movements and positions taken by traders, a trader can analyze an asset and know whether the future price of the asset will be on the buy side or the sell side.

Traders typically use values of between 0.5 and 2 as the breakout probability number, although there are no set rules as to what figures are used. Another way of using the volatility ratio is to determine the implied volatility relative to the recent historical volatility of the asset. The volatility ratio is thus based on the TR indicator (True Range Indicator), and detects days when the distance between the high and low prices for the asset on a given trading range is unusually wide.

The upside/downside ratio is classified as one of the market breadth indicators. Higher upside/downside ratios (i.e. values >1) indicate that the market is on a bullish run while lower values (or values <1) indicate that the market is bearish. This information can be used to predict the market momentum/breadth at any point in time, and is used to gauge when the market is overbought or oversold. This is calculated on an intraday basis.

There are three types of triangles: ascending, descending and symmetrical triangles. Ascending triangles have an ascending lower trend line, descending triangles have a descending upper trend line while a symmetrical triangle has an ascending and descending trend line.While there is always a trend line that is diagonal on orientation, the other trend line could be flat, ascending or descending. The triangle patterns will eventually terminate in a breakout from one or the other trend line.

This means that if there was a positive action by trader A to a market scenario, trader B will also show a reciprocal market response. If trader A’s market response to a scenario is negative, trader B will equally respond negatively if put in a similar situation. It states that when faced with a situation which gives virtually little options to choose from, the trader’s market response to another trader will depend on how the other trader’s response was to an earlier move made by the trader.

TSV essentially works by measuring when money is flowing in and out of an asset, (i.e. when demarcating the periods of accumulation (buying periods) from the periods of distribution (selling periods). In addition, the TSV can be used to determine market tops and bottoms by measuring the divergence between the price and the TSV indicator.The price and volume data can then be used to analyze periods when it is safe to buy an asset (period of accumulation) and when it is time to sell an asset (periods of distribution).

This is a potentially bullish reversal pattern which is rare in the market. It is not a very reliable signal and confirmation of an upward move must be sought before using this candlestick formation as a trade signal.

This is a decidedly bearish pattern as the lower highs and lower lows indicate that sellers have succeeded in gradually pushing the market lower. The Day 2 and Day 3 candlesticks open at the midway point of the preceding Day 1 and Day 2 candlesticks respectively, and close below the preceding candlesticks, forming a pattern that has progressively lower highs and lower lows.

The symmetrical triangle can lead to a bullish or bearish breakout. The direction of breakout is not fixed, therefore traders have to wait for the break to occur before they can follow the price action in the direction of the break ,as the price action moves towards the point of convergence of the two trend lines that form the symmetrical triangle, the asset will break out of any one side of the triangle according to the prevailing market sentiment.

Usually values that are higher than 50 are seen when there is more volume in advancing stocks than declining stocks, and figures less than 50 are seen when there is more volume in declining stocks than advancing stocks. STIX normally has a range of between 40 and 60 but usually oscillates around the 60 value, with figures less than 40 indicating oversold values and figures above 60 indicating overbought positions.

The appearance of the stick sandwich alerts traders that a bullish reversal is about to occur. The stick sandwich is a medium reliability pattern and further confirmation is required before it can be used to trade a bullish reversal.The Day 1 candlestick is a black Marubozu, followed by a white candlestick with a higher open and higher close, and then a Day 3 black candlestick with a higher open than the Day 2 candlestick but the same close as the Day 1 Marubozu.

Just like the Bollinger bands, the STARC bands can be used in range trading by selling at the upper band and buying at the lower band in a range-bound market. They are named after Manning Stoller who described them for the first time. STARC bands tend to loosen in volatile market situations and tighten when markets are less volatile. The upper band is formed by adding the average true range value to the simple moving average while the lower band is formed from deducting the value of the average true range from the SMA.

Traders can use the speed resistance lines for retracement trading. This tool has three trend lines which are drawn as follows: the first is drawn from swing high to swing low in a downtrend or swing low to swing high in an uptrend, and the other two are drawn at angles that try to connect recent highs or lows in a 1/3 or 2/3 retracement pattern, to identify any areas of support or resistance.

The simple moving average is a trend indicator and serves to provide a short term view of the trend of an asset. In other words, the closing prices of the most recent trading days (e.g. 14 days) is added together, and then the result is divided by the number of trading days used in the calculation (i.e. 14 days in this example).

This indicator serves to account for whether bull or bear price movements are being accounted for by a large number of stocks or by a small number of stocks. If the movements are being accounted for by a small number of stocks, it is likely that the movements are transient and that reversals will soon occur.

The McClellan oscillator works in a similar fashion to the MACD indicator. It is used to determine the amount of overbought and oversold conditions in the market, on a short and medium term basis.

A marubozo candle has no shadows. They are significant indicators that a big move in the direction of the candles colour is imminent.

The MTA was incorporated in 1973 and they currently conduct the Chartered Market Technician (CMT) exams and confer CMT professional certificates to deserving candidates. They can be said to be a pseudo-regulatory body for market technical analysts.

Market indicators usually contain much more information than just price and volume. As indicators, they are usually more exhaustive and provide information about market breath. Examples are the McClellan Oscillator, Arms Index and Advance/Decline Index.

Market breadth is a component of many market indicators and they enable analysts to easily detect trend continuations, exhaustions and reversals in the market by examining price actions of individual securities.

It implies that traders are trying to close the long positions they are holding. It is a sign that the trend is not actually reversing, but simply correcting and prices are expected to resume their bullish movement from the support zones. Traders can thus use this information to set long positions at these support areas.

The long-legged Doji shows the amount of indecision in the market. They signify an equilibrium in the forces of demand and supply and can be a sign of a market reversal especially when they occur at the end of a sustained uptrend or downtrend.

Also called a “log scale”, the scale is an important tool in long range price trends. It normalizes price movements by viewing them as percentages and not as mere price numbers. The distance between the numbers decreases with an increase in the price of the underlying asset.