Technical trading by John Murphy (3)

 
After we identify trends and determine the level of support and resistance (part 2), then we need to know the indicators that show the impending change in the direction of the trend and the strength of a trend.

6. Follow the direction of the moving average line
is actually a good indicator moving average method using simple (sma) or exponential (ema) provides trading signals that objectively, it's just their nature always late (lagging). This indicator does not predict the direction of the trend further, only hints at the State of the current trends are up (uptrend) or down (downtrend). Traders often get stuck when the market is sideway (ranging), therefore it is recommended to see the direction of the trend on higher time frame as a reference the main trend.

Moving average also act as support or resistance level. A popular way to learn trading signals is to use a combination of two moving averages with different periods. Trading signals occurs if a line of smaller cutting period (cross) line period. By following the direction of the moving average line we are trading in accordance with the direction of the trend (trend follower).



Some combinations of moving average that is popular among others: sma4 and 9 daily, sma9 and 18 daily, sma5 and 20 daily, sma8 and 21 daily, sma40 and 100 daily and sma144 and 200 daily.

7. Know when a reversal of the direction of price movement
If the moving average trend hints at this time, the indicator shows overbought state oscillator (saturated buy) and oversold (saturated selling) that suggests a reversal of the direction of price movements as trading signals. The State is a signal to sell overbought and oversold is a signal to buy. Two indicators of a hugely popular oscillator is the Relative Strength Index (RSI) and stochastics. Both are measured in a scale of 0-100%. Overbought/oversold state occurs at level 70/30 for RSI and stochastics for 80/20. The recommended period is 14 to RSI and 9 or 14 for stochastics.

In addition to overbought/oversold, the divergence that occurred on the indicator and price direction movement of the oscillator is also popular as a signal the reversal of the direction of motion of the price. Fairly accurate oscillator indicators be used on sideway market conditions. Signal on the weekly chart (weekly) can be used as a filter to chart daily, and the daily chart signals as filters to lower time frame.

8. Know the indications change trend Indicator
Moving Average Convergence Divergence (MACD) is a combination of two interlocking cross moving average with the overbought/oversold elements of an oscillator. In addition to the circumstances the way overbought/oversold reading almost the same indicators, MACD oscillator also indicate impending trend change when line trigger (trigger line) crossing with MACD line (MACD line). A popular way to know an indication of a change of trend is by looking at the histogram MACD divergence with the onset of price movement.

9. Know the strength (strength)
trend Indicators are used to measure the strength of the trend generally was Average Directional Movement Index (ADX). The ADX line moving up shows a strong trend, and vice versa when moving down shows the trend is being weakened. A strong trend occurs when ADX (blue) between the level of 25-65. Above level 70 usually indicates a State of saturated and will soon trend reverses direction. The right time to open buy/sell when + DI (color green) cross-on (red) from the bottom/top (see pictures below).


 

10. Know the direction of the trend of the magnitude of the volume of trade (for the stock market and futures)
in the stock market (and also stock index) and futures, an indicator of volume and open interest is very important to know and confirm the trend of price movement direction of the market right now. In both types of market indicators the volume always precedes price movement (leading indicator). The higher the volume then the stronger trend of the market. The higher open interest indicator also shows the trend grew stronger, but when open interest began to fall then shows the trend will saturate and will be reversible. Because the forex market is not centered on one of the Exchange as well as stock market, or decentralized, then the overall volume for trade statistics are not available so we could not measure the strength of the trend based on trading volume and open interest.

That's the essence of the content of the popular book titled ' Ten Laws of Technical Trading ' or ' Ten Technical Trading Rules in the ' written by John Murphy.