Thechnical indicators encyclopedia

Table of contents

Introduction

In this blog I will briefly describe the technical indicadors available at TradingShepherd. As TradingShepherd adds new indicators I will provide a brief explanation here.

For those who want to know more I recommend "The Encyclopedia of Technical Market Indicators" by Robert Colby. There are also many resources online, for instance Investopedia, that the readers can explore.

Accumulation/distribution indicator

The Accumulation/Distribution (A/D) indicator measures the cumulative flow of money into and out of a security. It combines price and volume to determine whether a stock is being accumulated (bought) or distributed (sold). When the A/D line is rising, it suggests buying pressure; when it's falling, it signals selling pressure.

Aroon oscilator

The Aroon oscilator identifies trend changes and strength by measuring time since highs/lows. Strong uptrends will regularly see new highs, and strong downtrends will regularly see new lows.

The Aroon Oscillator is calculated as the difference between the Aroon Up and Aroon Down indicators. It ranges from -100 to +100. Positive values suggest an uptrend is dominant, while negative values point to a prevailing downtrend.

Average directional index

The Average Directional Index (ADX) quantifies trend strength regardless of direction. It ranges from 0 to 100: a value below 20 suggests a weak trend, while a value above 40 signals a strong trend. ADX is often used alongside the +DI and -DI lines, which indicate trend direction.

Average true range

The Average True Range (ATR) measures market volatility by averaging the true range over a set number of periods. True range considers the largest of: the current high minus the current low, the absolute value of the current high minus the previous close, and the current low minus the previous close.

Bollinger bands

Bollinger Bands consist of 3 bands: the upper, lower and middle bands. The middle band is the 20 days moving average. The upper and lower band are set a number of standard deviations above and below the middle band. Typically 2 standard deviations are used.

If volatility increases, the bands become further apart. Conversly if volatility decreases the bands get closer.

Commodity channel index

The Commodity Channel Index (CCI) identifies cyclical trends in an asset. It measures the deviation of price from its statistical mean. High positive values suggest overbought conditions; low negative values suggest oversold conditions. CCI is often used for spotting reversals.

Donchian channel

The Donchian Channel plots the highest high and lowest low over a user-defined period, typically 20 days. It helps identify breakouts and trend direction. A breakout above the upper band may signal bullish momentum, while a move below the lower band may indicate bearish pressure.

Exponentially weighted moving average

The Exponentially Weighted Moving Average (EWMA) gives more weight to recent prices when compared with a simple moving average, making it more responsive. The weight decays exponentially, helps capture short-term trends more effectively.

Fibonacci retracement

Fibonacci retracement levels are horizontal lines that indicate where support and resistance are likely to occur. The key levels (23.6%, 38.2%, 50%, 61.8%, and 78.6%) are derived from the Fibonacci sequence and are used to identify potential reversal zones.

Garman-Klass volatility

The Garman-Klass volatility estimator improves on traditional close-to-close volatility by incorporating open, high, low, and close prices. It assumes no drift and no opening jumps, offering a more efficient volatility estimate under idealized conditions.

Ichimoku Cloud

The Ichimoku Cloud is a comprehensive indicator that defines support, resistance, trend direction, and momentum. It includes five lines, most notably the Kumo (cloud), which offers dynamic support/resistance zones. A price above the cloud signals bullish trends; below indicates bearish.

Keltner channel

The Keltner Channel is formed by placing bands above and below anexponential moving average, using the Average True Range to set the distance. It adapts to volatility and can help spot breakouts or overbought/oversold levels.

Money flow index

The Money Flow Index (MFI) is a momentum oscillator that uses both price and volume to measure buying and selling pressure. It ranges from 0 to 100, with values above 80 considered overbought and below 20 oversold.

Moving average convergence/divergence

The MACD is a trend-following momentum indicator that shows the relationship between two EMAs, typically 12- and 26-period. A signal line (usually a 9-period EMA) is plotted on top. Crossovers between MACD and signal line can indicate entry or exit points.

Moving average crossover

A moving average crossover occurs when a short-term moving average crosses above or below a long-term one. A bullish signal happens when the short-term average moves above the long-term (golden cross), while a bearish signal (death cross) occurs when the opposite happens.

On-balance volume

On-Balance Volume (OBV) tracks cumulative volume flow. Volume is added on up days and subtracted on down days. Rising OBV indicates buying pressure; falling OBV suggests selling pressure. It can confirm trends or signal potential reversals.

Parabolic SAR

The Parabolic Stop and Reverse (SAR) is a trend-following indicator. It places dots above or below the price to indicate direction. When the dots flip sides, it signals a potential reversal. It's commonly used for setting trailing stops.

Parkinson volatility

Parkinson volatility is an estimator that uses high and low prices instead of just closing prices, making it more efficient under stable conditions. It assumes no jumps or drift and is especially useful in estimating intraday volatility.

Percentage price oscillators

The Percentage Price Oscillator (PPO) is similar to the MACD but expresses the difference between two exponential moving averages as a percentage. This makes it useful for comparing assets of different prices or scales.

Pi cycle top indicator

The Pi Cycle Top Indicator is a technical analysis tool normally used to predict Bitcoin, market tops. It combines two moving averages, which, when crossed, signal a price peak.

In the case of Bitcoin, the 2 moving averages are (i) a 111 day simple moving average and (ii) a 350 days simple moving average of the price multiplied by 2.

Rate of change

The Rate of Change (ROC) is a momentum oscillator that measures the percentage change in price over a specified period. Positive values indicate upward momentum; negative values point to downward momentum.

Relatice strength index

The Relative Strength Index (RSI) is a momentum oscillator that compares the magnitude of recent gains to losses. It ranges from 0 to 100. Readings above 70 typically indicate overbought conditions; below 30 suggests oversold.

Rogers-Satchell-Yoon volatility

The Rogers-Satchell-Yoon (RSY) estimator uses open, high, low, and close prices and allows for non-zero drift, improving on simpler estimators like Garman-Klass under real-world conditions.

Shepherd's momentum

The Shepherd's momentum (SM) is a twist on the traditional moving average crossover indicator. The SM is defined between -1 and 1. A value of 1 would mean full long and a value of -1 fully short. Values in between indicate that part of the capital is invested and that the remaining is held in cash. For more details please check the Shepherd's momentum: a brief introduction blog.

Shepherd's volatility

The Shepherd's volatility is a type of an Autoregressive Conditional Heroscedasticy (ARCH) model. This models are used to model series characterized by time varying volatility and volatility clustering, which are common in financial time series.

ARCH models help traders and risk managers forecast periods of high and low volatility, which can impact everything from option pricing to risk management.

Simple moving average

A simple moving average (SMA) is the arithmetic average computed over a period of time. The SMA calculated at time k is: $\mu_k = \frac{1}{n}\sum_{i=k-n+1}^{k}p_i$, where $p_i$ is the price at time i and n is the number of periods.

Stochastic oscillator

The Stochastic Oscillator compares a closing price to the range of prices over a set period. It includes %K and %D lines, and is used to identify overbought (above 80) or oversold (below 20) conditions.

Supertrend

The Supertrend indicator follows price trends and signals reversals. It is based on the ATR and plotted above or below price. When the price closes above the indicator, it turns bullish; below it, bearish.

True range

True Range measures the largest of: the current high minus the current low, the absolute value of the current high minus the previous close, or the current low minus the previous close. It captures gaps and volatility better than just high-low range.

Volume accumulation oscillator

The Volume Accumulation Oscillator blends price and volume to detect buying/selling pressure. It rises when price closes in the upper range and falls when it closes in the lower range, with magnitude based on volume.

Volume-weighted average price

The Volume-Weighted Average Price (VWAP) provides an average price a security has traded at throughout the day, weighted by volume. It is used to gauge fair value and benchmark institutional execution.

Williams percent range

The Williams %R is a momentum oscillator that measures how close the current price is to the highest high over a given period, typically 14 days. It ranges from -100 to 0. Readings above -20 indicate overbought conditions, while readings below -80 suggest oversold levels.

Yang Zhang volatility

Yang-Zhang volatility is a hybrid estimator that combines open-to-close, close-to-open, and high-low variance components. It adjusts for opening jumps and drift, making it one of the most accurate volatility estimators.