Technical Indicators: C (part 1)
CCT Bollinger Bands Histogram
The CCT Bollinger Band Oscillator, also sometimes referred to as the CCT Bollinger Band Oscillator, reconfigures John Bollinger's classic Bollinger Bands (envelopes plotted at two Standard Deviations above and below a moving average) by drawing two parallel lines replacing the erratic envelopes.
The parallel lines represent a measurement of two Standard Deviations from the mean and are assigned a value of zero and 100 on the chart. The indicator represents the price as it travels above and below the mean (50%) and outside the two standard deviations (zero and 100). Penetration of the upper band represents overbought conditions while penetration of the lower band signifies oversold conditions.
Usage of the CCT Bollinger Band Oscillator to identify "failure swings" and "divergences" can lead to significant reversals.
Indicator provided by Steve Karnish of Cedar Creek Trading.
Chaikin Money Flow
Developed by Marc Chaikin, the Chaikin Money Flow compares total volume to the closing price and the daily highs and lows to determine how many issues are bought and sold of a particular security. It is based upon the assumption that a bullish stock will have a relatively high close price within its daily range and have increasing volume. However, if a stock consistently closed with a relatively low close price within its daily range with high volume, this would be indicative of a weak security. There is pressure to buy when a stock closes in the upper half of a period's range and there is selling pressure when a stock closes in the lower half of the period's trading range. Of course, the exact number of periods for the indicator should be varied according to the sensitivity sought and the time horizon of individual investor.
An obvious bearish signal is when Chaikin Money Flow is less than zero. A reading of less than zero indicates that a security is under selling pressure or experiencing distribution.
A second potentially bearish signal is the length of time that Chaikin Money Flow has remained less than zero. The longer it remains negative, the greater the evidence of sustained selling pressure or distribution. Extended periods below zero can indicate bearish sentiment towards the underlying security and downward pressure on the price is likely.
The third potentially bearish signal is the degree of selling pressure. This can be determined by the oscillator's absolute level. Readings on either side of the zero line or plus or minus 0.10 are usually not considered strong enough to warrant either a bullish or bearish signal. Once the indicator moves below -0.10, the degree selling pressure begins to warrant a bearish signal. Likewise, a move above +0.10 would be significant enough to warrant a bullish signal. Marc Chaikin considers a reading below -0.25 to be indicative of strong selling pressure. Conversely, a reading above +0.25 is considered to be indicative of strong buying pressure.
The Chaikin Money Flow is based upon the assumption that a bullish stock will have a relatively high close price within its daily range and have increasing volume. This condition would be indicative of a strong security. However, if it consistently closed with a relatively low close price within its daily range and high volume, this would be indicative of a weak security.
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Chaikin Oscillator
The Chaikin Oscillator, or Chaikin A/D Oscillator as it is sometimes referred to, stems from the concept behind the Accumulation/Distribution Line. The basic premise of the Chaikin Oscillator (and the A/D Line) is that the degree of buying or selling pressure can be calculated by the location of a close relative to the high and low for the corresponding period. There is buying pressure when a stock closes in the upper half of a period's range and there is selling pressure when a stock closes in the lower half of the period's trading range.
The Chaikin Oscillator is created by subtracting a 10-period exponential moving average of the Accumulation/Distribution Line from a 3-period exponential moving average of the Accumulation/Distribution Line
The Chaikin Oscillator may be an excellent tool for generating buy and sell signals when its action is compared to price movement. However, because the Chaikin Oscillator is an indicator of an indicator, it is prudent to look for confirmation of a positive or negative divergence, say a moving average crossover, before counting this as a signal.
Two bullish signals that can be generated from the Chaikin Oscillator: positive divergences and bullish centerline crossovers. Two bearish signals that can be generated from the Chaikin Oscillator: a negative divergence and a bearish centerline crossover.
Chaikin Volatility Indicator
Simply put, the Chaikin Volatility Indicator is the difference between two moving averages of a volume weighted accumulation-distribution line. By comparing the spread between a security's high and low prices, it quantifies volatility as a widening of the range between the high and the low price.
One interpretation of these calculations assumes that market tops are frequently accompanied by increased volatility (as investors get nervous and become indecisive) and latter stages of a market bottom are generally accompanied by decreased volatility. Chaikin has written that an increase in the Volatility Indicator over a relatively short time period indicates that a bottom is near and that a decrease in volatility over a longer time period indicates an approaching top.
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