Technical Indicators: P (part 2)
Price Action Indicator (PAIN)
Using only today's open, high, low and close, the Price Action Indicator (PAIN) provides quite a bit of useful information. Using the formula:
[(C-O)+(C-H)+(C-L)] / 2
where:
(C-O) defines Intra-Day Momentum,
(C-L) defines Late Selling Pressure (LSP) and
(C-H) defines Late Buying Pressure (LBP).
This yields a single value that has proven itself by constructing ideal limit-up and limit-down scenarios in bond futures. The output has also shown to be consistent with the interpretation of Japanese candlestick patterns.
When the Close is near the Low, the stock's price is under selling pressure. If the Close is near the High, the stocks price is under buying pressure, the "Bulls are driving up the price." If the overall market conditions remain favorable, a high PAIN value with the Close near the High will be an excellent potential long.
Price and Volume Trend
As adjusted cumulative total of volume, the Price and Volume Trend is similar to On Balance Volume. But where OBV adds all volume on days when prices close higher and subtracts all volume on days when prices close lower, the Price and Volume Trend adds or subtracts only a portion of the daily volume.
As the amount of volume added to the PVT is determined by the amount that prices rose or fell relative to the previous day's close, many claim it can more accurately illustrate the flow of money into and out of a security than can the OBV. Recall that the OBV is designed so that it adds the same amount of volume to the indicator if the security closes up a fraction or doubles in price. The PVT on the other had, adds a small portion of volume to the indicator when the price changes by a small percentage and a large portion of volume to the indicator with tlarge changes in the price.
The Price and Volume Trend is calculated:
[ { (Close - Yesterday's Close) / Yesterday's Close } * Volume ] + Yesterday's PVT
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Price Channel
Inspired by the Dow Theory and by observations found throughout nature, the Elliott Wave Theory identifies a repetitive pattern of five waves in the direction of the main trend followed by three corrective waves. These waves are used to predict movement of the stock market. Ralph Nelson Elliott used Price Channels as a method of arriving at price objectives and to help confirm the completion of wave counts.
Once an uptrend has been established, an initial trend channel is constructed by drawing a basic up trendline along the bottoms of waves 1 and 2. A parallel channel line is then drawn over the top of wave. The entire uptrend will often stay within those two boundaries.
If wave 3 begins to accelerate to the point that it exceeds the upper channel line, the lines are redrawn along the top of wave 1 and the bottom of wave 2.
The final channel is drawn under the two corrective waves (2 and 4) and usually above the top. If wave 3 is either unusually strong or an extended wave, the upper line may have to be drawn over the top of wave 1.
The fifth wave should come close to the upper channel line before terminating. For the drawing of channel lines on long term trends, it's recommended that semilog charts be employed along with arithmetic charts.
The upper trendline will mark resistance and the lower trendline marks support. Price channels with downward slopes are considered bearish and those with upward slopes are bullish.
Look to buy when prices reach main trendline support in a bullish price channel. Sell (or short) when prices reach main trendline resistance in a bearish price channel.
Price Oscillator
The Price Oscillator indicator shows the variation among two moving averages for the price of a security. Unlike the MACD which always uses 12- and 26-day moving averages and always expresses the difference in points, the Price Oscillator can show the variation between any moving averages and can be shown in either percentages or points.
Moving average analysis typically generates buy signals when a short-term moving average or price rises above a longer-term moving average. Sell signals are generated when a shorter-term moving average or price falls below a longer-term moving average. The Price Oscillator's single line illustrates the cyclical and often profitable signals generated by a two moving average system. Buy when the Price Oscillator rises above zero and sell when the indicator falls below zero.
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