Reading Assignments: Indicators

Time for another reading assignment. Read this blog post (https://www.investopedia.com/articles/active-trading/041814/four-most-commonlyused-indicators-trend-trading.asp) and answer the following questions in this forum thread.

  1. What is MACD and how is it used?
  2. What is the difference between MACD and RSI?
  3. What is OBV and how is it used?
  1. MACD (Moving Average Convergence Divergence) can be used to view overall trend of the market and identify probable pull backs and reversals. MACD is comprised of 2 moving avg (fast/slow) and histogram plotted on a 0 neutral scale.

  2. MACD is generally used to gauge the trend and strength of the market. RSI is generally used to gauge overbought/oversold conditions. Although these are not exclusive uses, they are the most common uses for new traders learning these indicators.

  3. OBV (On Balance Volume) measures volume flow (positive/negative) and is generally used as a momentum indicator and identify divergence in price action.

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1 .MACD - “smooth” price data by creating a single flowing line. Representing an Average it used for cross overs to predict trends. it can provide indications of support and resistance. 2 waves plotted on a histogram.

  1. RSI - indicates of overbought or oversold market. whilst MACD - indicates the overall strength and trend of the market.

3.OBV - On Balance volume is a single one line indicator which cumulatively indicates buying or selling pressure

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What is MACD and how is it used?

The MACD is an oscillating indicator, fluctuating above and below zero. It is both a trend-following and momentum indicator.

One basic MACD strategy is to look at which side of zero the MACD lines are on in the histogram below the chart. Above zero for a sustainable period of time, and the trend is likely up; below zero for a sustained period of time, and the trend is likely down. Potential buy signals occur when the MACD moves above zero, and potential sell signals when it crosses below zero.

What is the difference between MACD and RSI?

The RSI’s movements are contained between zero and 100.

The RSI provides information about if the price is overbought and due for a correction or oversold and due for a bounce.

What is OBV and how is it used?

OBV takes a lot of volume information and compiles it into a single one-line indicator. The indicator measures cumulative buying/selling pressure by adding the volume on up days and subtracting volume on down days.

A rising price should be accompanied by a rising OBV; a falling price should be accompanied by a falling OBV.

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  1. What is MACD and how is it used? The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. The result of that calculation is the MACD line. A nine-day EMA of the MACD, called the “signal line,” is then plotted on top of the MACD line, which can function as a trigger for buy and sell signals.

  2. What is the difference between MACD and RSI? The main difference is that RSI has values between 0 and 100 and it gives indications about phases of overbought and oversold in the market, while MACD fluctuating above and below zero and it gives more information about the trend of the market.

  3. What is OBV and how is it used? On-balance volume (OBV) is a technical indicator based on volume changes to make price predictions. OBV shows crowd sentiment that can predict a bullish or bearish outcome. Comparing relative action between price bars and OBV generates more actionable signals than the green or red volume histograms of Volume indicator.

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  1. What is MACD and how is it used?
    By looking at which side of 0 the lines are on.

  2. What is the difference between MACD and RSI?
    RSI is showing over bought and over sold. MACD is comparing two signals a fast and a slow line.

  3. What is OBV and how is it used?

This is looking at volume. On weekends some times crypto market moves up or down with very little volume. Since very little money is behind the move it often can be reversed when Monday comes around.

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What is MACD and how is it used?

The MACD acts both as a trend following and momentum indicator. Oscillations happen above and below the zero line. The main usage is to look for crossovers. When the fast line crosses the slow line from the top, it is interpreted as a buy signal. When the fast line crosses the slow line from below, it is interpreted as a sell signal.

What is the difference between MACD and RSI?

The RSI and the MACD are both oscillator signals. The first traditionally varies in between a range of -2 to 2 while the latter is measured on a range from 0 to 100.

The RSI provides 2 main signals, namely “overbought” and “oversold”. By common configuration, values above 70 indicate that we have an “oversold” trend while values below 30 indicate an “overbought” trend.

The MACD helps us understand in which direction the trend might be going while the RSI provides signals as to when we could see a potential shift in the trend.

What is OBV and how is it used?

OBV is essentially used to confirm a trend. A rising price should be backed by a growing OBV and vice versa.

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  1. MACD (Moving Average Convergence Divergence) is an oscillating indicator, fluctuating above and below zero. It is both a trend-following and momentum indicator. The MACD is made up of two moving averages, that are of two different time periods. It is used to indicate points on a chart where the trend might be accelerating. This can be be determined when the two moving averages cross on the histogram; this can indicate an entry signal for traders. Above zero and sustained is considered to be in an uptrend; whereas; below zero and sustained is a signal of a downtrend.

  2. MACD movement fluctuates above and below zero. RSI (Relative Strength Index) on the other hand, its movement is tracked between 0 and 100 in the histogram. RSI indicates when price may be “overbought” (indicator at 70 or above and due for a correction - also can be determined as an uptrend) and when the price may be “oversold” (indicator at 30 or below and due for a bounce - also can be determined as an downtrend).In short, MACD utilises two moving averages for indication of trading signals, while RSI uses overbought/oversold indicators to help determine trading signals. “Long-trade” signal is indicated when the RSI moves below 50 and then back above it. “Short-trade” signal is indicated by the RSI moving above 50 and then back below it.

  3. OBV (On-Balance Volume) packs enormous use into a simple accumulation-distribution tool that tallies up/down volume, adding (up) or subtracting (down) the result in a continuous sub-total. The formula generates a smooth indicator line that carves out highs, lows and trend lines. Comparing relative action between price bars and OBV, generates more actionable signals.
    i.e. volume should confirm trends, therefore:
    -a rising price should be accompanied by a rising OBV; whereas
    -a falling price should be accompanied by a falling OBV.

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  • What is MACD and how is it used?

Moving
Average
Convewrgence
Divergence

It has “fast” and “slow” lines.
fast crossing above slow ==> buy signal
fast crossing under slow ==> sell signal

  • What is the difference between MACD and RSI?

RSI is normalized in 0…100 range. It has a single line value (while MACD has 2 lines).
The line going “above 70” or “below 30” indicates a trend change.

  • What is OBV and how is it used?

On
Balance
Volume

if simplified, it’s a sum of candlestick info and volume info to indicate “volume pressure” in a single line.
It is used to predict the future behaviour of trends (if drop does not fall below OBV value, the trend is likely to continue go up).

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  1. MACD stands for Mobile Average Convergence Divergence and it is used for predicting the trends.
  2. MACD is turning around zero because it’s focused on trends (up or down) whereas RSI is between 0 and 100 and indicates correction or (re)bounce.
  3. OBV stands for On-Balance Volume and it’s used for measuring the cumulative buying/selling pressure.
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  1. The MACD is a trend-following and momentum indicator with a neutral line (zero), which can be used to determine the current trend. Two moving averages in the indicator (fast and slow line) additionally depict possible reversals.

  2. The RSI is also an oscillator, measured between 0 and 100. It differentiates between an “overbought” (above 70) and “oversold” (below 30) territory to indicate possible reversals.

  3. The volume indicator measures buying and selling pressure. Trends in price should be underlined with a trend in volume - increasing or decreasing to the corresponding circumstances.
    A divergence between the price trend and the OBV trend can be viewed as a buy or sell signal.

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