Technical

Descending Price Channels within Long-term Price Uptrends

A descending channel or “descending channel pattern” represents a price downtrend that is illustrated between two downward-sloping trend lines. While descending channel patterns are bearish, they often form within longer-term upward trends. Many traders look for short-term descending channels within uptrends as good entry points in anticipation of price breaks to the upside. [...]

Using Fibonacci Clusters to Identify Support and Resistance Levels

Fibonacci clusters are tools used by technical analysts to identify support and resistance levels by combining multiple Fibonacci retracements. A retracement refers to a reversal in a stock price’s movement due to the tendencies of prices to correct (or “retrace”). In Fibonacci analysis, Fibonacci numbers, and the ratios they offer, are used to [...]

Analyze the Advance/Decline Index to Determine Market Direction

The advance/decline index is a tool used by technical analysts to measure the difference between the number of securities whose prices are advancing against those in decline. The index is seen as one of the best gauges of market direction as a whole. Traders generally view a rising value in the advance/decline index [...]

Use the McClellan Oscillator to Identify Overbought and Oversold Market Conditions

The McClellan Oscillator is a market breadth indicator used to measure the difference between the number of advancing NYSE issues and those that are declining. Developed by Sherman and Marian McClellan in 1969, the oscillator leverages exponential moving averages (EMA) and is primarily used for short and intermediate-term trading.

What is an Exponential Moving Average?

A [...]

A Pairs Trading Stock Investing Strategy

Pairs trading or “statistical arbitrage” is a stock trading strategy through which the investor simultaneously buys and sells two (normally) correlated stocks when they diverge from their typical pattern with the expectation of capturing a profit when the pattern returns to normal. Pairs trading is a market neutral position that enables the investor to [...]

Identify a Double Top on a Stock Chart

A double top occurs on a stock chart when a stock price rises, drops, and rises to the same level before dropping again- this time below the lowest low (the confirmation point) of the pattern. A double top is sometimes referred to as an “M formation” because of the pattern it creates on the [...]

Calculate and Interpret the Percentage Price Oscillator (PPO)

The Percentage Price Oscillator or “PPO” is an indicator used by technical investors to measure momentum by demonstrating the relationship between two moving averages. Two inputs are required to calculate the PPO: a shorter-term and a longer-term exponential moving average (EMA). To perform the calculation, the longer term EMA is subtracted from the shorter-term [...]

Identify a Double Bottom on a Stock Chart

A double bottom is a term used in technical analysis to describe a drop in the price of a stock, index, or another security, a price rebound, a subsequent drop to the same level and another rebound. Many technical analysts believe that a true double bottom forms only when the rebound from the first [...]

Interpret the Doji on Candlestick Stock Charts

All stock market investors, whether they subscribe to technical analysis, fundamental analysis, a combination of the two, or any other approach to stock investing should develop a familiarity with stock charts. Candlestick charts, in particular, offer a great deal of information regarding price behavior. A Doji is one particular formation investors can look [...]

Calculate the Relative Vigor Index in Technical Analysis

The Relative Vigor Index (RVI) is used by technical analysts under the theory that prices tend to close higher than their open in upward-trending markets and lower than their open in downward-trending markets. Thus the “vigor” of the move is determined by where the prices are at the close of market. Originally constructed [...]