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- R-Squared
The R-Squared or R2 indicator illustrates how well the Linear Regression Trendline approximates real data points. An R-Squared of 1.0 indicates a perfect fit.
If the R-Squared indicator falls below the critical values shown below, it would illustrate no correlation between the price and the Linear Regression Trendline.
| Number of Periods |
R-Squared Critical Value
(95% confidence) |
| 5 | .77 |
| 10 | .40 |
| 14 | .27 |
| 20 | .20 |
| 25 | .16 |
| 30 | .13 |
| 50 | .08 |
| 60 | .06 |
| 120 | .03 |
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- Random Walk Index
The Random Walk Index was created by Michael Poulos who wanted to find an indicator that overcame the effects of a fixed look-back period as well as the drawbacks of traditional smoothing methods.
The RWI is based upon the concept of the shortest distance between two points is a straight line. The further prices stray from that straight line within a given time, the less efficient the movement. The more random the movement, the greater the RWI fluctuates.
To effectively use the RWI, Poulos recommends 2 to 7 periods for the short term and 8 to 64 periods for the long term. This is to illustrate the randomness of the short term and the trends of the long term. In the short term, peaks of RWI highs correlate with peaks in price. Peaks of RWI lows correlate with drops in price.
In the long term, peaks of RWI highs above 1.0 illustrate a strong uptrend. Peaks of RWI lows above 1.0 illustrate a strong downtrend.
A trading system using this index would be enter long (or close short) when the long-term RWI of highs is greater than 0 and short term RWI of lows rises above1.0. Likewise, when the long-term RWI of the lows is greater than 1.0 and the short-term RWI of highs rises above 1.0, enter short (or close long).
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- Range Indicator
Developed by Jack Weinberg, the Range Indicator is based on his observation that changes in the average day's intraday range (high to low) as compared to the average day's interday range (close to close) will either signal a start of a new trend or the end of an existing trend.
When the intraday ranges are dramatically higher than the interday ranges, the market is considered "out of balance," and the Range Indicator will be at a high level. Look for the current trend to end when this happens. When the Range Indicator is at a low level (below 20), look for the emergence of a new trend.
The Range Indicator can be used to improve many momentum and trend-following trading systems. Weinberg found that the results of a basic two moving average crossover system was dramatically improved by filtering the signals with the Range Indicator. By waiting to enter a long position until the Range Indicator crossed above a defined low level and then waiting to exit until the indicator crossed above a defined high level, profits, number of trades, and risk were dramatically improved.
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- Rate of Change
The Rate of Change is an oscillator that displays the difference between the current price and the price x-time periods ago. As prices increase, the ROC rises and as prices fall, the ROC falls. The greater the change in prices, the greater the change in the ROC.
The 10-day ROC is an excellent short- to intermediate-term overbought/oversold indicator. The higher the ROC, the more overbought the security; when the ROC falls expect a rally. As with all overbought/over-sold indicators, watching for the market to start its correction before placing a trade. Often extremely overbought/oversold readings usually imply a continuation of the current trend and any overbought market may remain that way for some time.
A 10-day ROC tends to oscillate in a fairly regular cycle. Often, price changes can be anticipated by studying past cycles of the ROC and applying the predicted pattern to the current market.
To construct a 10 day rate of change oscillator, the latest closing price is divided by the close 10 days ago:
| ROC |
= |
[ |
(Close-Close 10 periods ago)
(Close 10 periods ago) |
] |
* |
100 |
Information provided by John Murphy, author of Technical Analysis of the Financial Markets and The Visual Investor.
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- Relative Momentum Index (RMI)
Introduced by Roger Altman in the February 1993 issue of Technical Analysis of Stocks & Commodities magazine, the Relative Momentum Index is a variation of the Relative Strength Index (RSI). Instead of counting up and down days from close to close like the RSI, the Relative Momentum Index counts up and down days from the close relative to a close n-days ago (where n is not limited to 1 as required by the RSI).
As with all overbought/oversold indicators, the RMI exhibits similiar strengths and weaknesses. In strong trending markets the RMI will remain at overbought or oversold levels for an extended period.In non-trending markets the RMI tends to predictably oscillate between an overbought level of 70 to 90 and an oversold level of 10 to 30. When the RSI diverges from the price, the price will eventually correct to the direction of the index.
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- Relative Strength Index (RSI)
The Relative Strength Index (RSI) is an oscillator first introduced in 1978 by Welles Wilder in Commodities (now Futures) Magazine. The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses on a scale from 0 to 100.
When using the RSI as an overbought/oversold indicator, Wilder recommended using levels of 70 or more as overbought and 30 and and below as oversold. Generally, if the RSI rises above 30 it is considered bullish for the underlying stock. Conversely, if the RSI falls below 70, it is a bearish signal.
Another method of analyzing the RSI is to look for a divergence. If the security is making a new highs and yet the RSI fails to surpass its previous high, this is an indication of an impending reversal. When the RSI then turns down and falls below its most recent trough, it is said to have completed a "failure swing." This serves as a confirmation of the impending reversal.
While the RSI is calculated using a fairly simple formula, it may be wise to refer to Wilder's New Concepts in Technical Trading Systems for a more complete discussion. The basic formula for the RSI is:
Where:
U=An average of upward price change
D=An average of downward price change
Information provided by John Murphy, author of Technical Analysis of the Financial Markets and The Visual Investor.
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- Relative Strength Index EMA
- The Relative Strength Index (RSI) is an oscillator first introduced in 1978 by Welles Wilder in Commodities (now Futures) Magazine. This indicator identifies support and resistance based on the closing price.
The Relative Strength Index EMA (RSI2) allows the trader to create a relative strength indicator based on the low price for a period. It can be useful in enhancing short-term trading systems by using long-term price movements.
Further information on the RSI2 can be found in the September 2004 issue of Technical Analysis of Stocks and Commodities
http://www.traders.com
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- Relative Strength, Comparative
Comparative Relative Strength compares the price movement of a stock with an index, a sector or another stock to illustrate how they are performing relative to one another. It is derived by dividing one security's price by a second (or "base") security's price. The result of this division is the ratio or relationship between the two securities.
When the indicator is moving up, the security is outperforming the base security. Sideways movement means the stock and security are rising and falling by the same percentage. When it is moving down, the security is performing worse than the base security.
Use the indicator to to compare a security's performance with a market index or to develop spreads - buy the best performer and short the weaker one.
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- Relative Volatility Index
Developed by Donald Dorsey, the Relative Volatility Index is the Relative Strength Index (RSI) only with the standard deviation over the past 10 days used in place of daily price change. Use the RVI as a confirming indicator as it makes use of a measurement other than price as a means to interpret market strength.
The RVI measures the direction of volatility on a scale from zero to 100. Readings >50 indicate that the volatility is more to the upside. Readings <50 indicate that the direction of volatility is to the downside. Initial testing by Dorsey has indicated that the RVI can be used in the same way as the RSI.
When testing the profitability of a basic moving average crossover system, Dorsey found results could be significantly enhanced by the application of a few rules:
- Only buy if RVI >50.
- Only sell if RVI <50.
- If you missed the buy at 50, buy long if RVI >60.
- If you missed the sell at 40, sell short if RVI <40.
- Close a long if RVI falls <40.
- Close a short if RVI rises >60.
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- Ribbon Study
The Ribbon Study is best described as the charting of several Moving Averages (10 day, 20 day, 30 day, etc.) all drawn on top of pricing data for the period selected.
When the lines converge or 'compress' upon each other an opportunity appears as a change in direction of price should occur.
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real-time data |
delayed data |
end-of-day data
