TAG Villanova Technical Analysis Group

VOLUME

Understanding Volume  Volume is the number of shares or contracts over a given period of time, that is usually over one trading day  The volume of a security if found at the bottom of any chart  The volume bars indicate how many shares have traded for a specific period  Show trends in the same way that prices are shown

Reading Volume on a Chart

Why is Volume Important  Volume can confirm trends and chart patterns  A price movement in a security with relatively high volume is more significant than a similar move with relatively weaker volume

Volume and Price Movements

Volume Spikes  Volume spikes are often the result of news driven events. They occur when there is an increase of 500% or more in volume over the recent volume average.  This volume spike will often lead to sharp reversals, since the moves are unsustainable due to the imbalance of supply and demand.

Volume Spike

Price Patterns and Volume  Volume is an essential part of every technical formation. Every price pattern will typically have a volume pattern attached to it as well. If the volume pattern does not align with price, then the interpretation of the price pattern should be suspect.  Volume precedes price, which means that volume will indicate the end of an uptrend or a downtrend before the price action indicates it.

Price Patterns and Volume

MOVING AVERAGES

What is a Moving Average  A moving average is the average price of a security over a set amount of time  Once the day-to-day fluctuations are removed, traders are better able to identify the true trend and increase the probability that it will work in their favor

Simple Moving Average (SMA)  This is the most common method used to calculate the moving average of prices. It simply takes the sum of all of the past closing prices over the time period and divides the result by the number of prices used in the calculation.

SMA

SMA continued

Exponential Moving Average  This type of moving average reacts faster to recent price changes than a simple moving average. The 12- and 26- day EMAs are the most popular short-term averages, and they are used to create indicators like the moving average convergence divergence (MACD) and the percentage price oscillator (PPO).

Calculating EMA  Exponential Moving Average shows the average value of the underlying data, most often the price of a security, for a given time period, attributing more weight to the latest changes and less to the changes that lie further away.

EMA Chart

EMA vs. SMA

Uses of Moving Averages  Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels.  Moving averages can be used to quickly identify whether a security is moving in an uptrend or a downtrend depending on the direction of the moving average.

Using Moving Averages and Trends

Support and Resistance

Crossover  The other signal of a trend reversal is when one moving average crosses another

Crossover

Crossover Continued

MACD

 Moving Average Convergence Divergence  The MACD is a combination of two moving averages into a momentum oscillator  Momentum Indicator- Identity whether or not the price has upward momentum.  This means that if they move above the zero line the have positive momentum.

Why do we use indicators?  Buy Signals  Sell Signals  To confirm price movement  Identify trend reversal

Breaking Down the MACD  MACD line consist of the (12-day EMA minus the 26-day EMA). MACD Line

 Signal Line (9-day EMA) Signal Line Breaking Down the MACD

 MACD Histogram (MACD minus Signal Line) MACD Histogram Breaking Down the MACD

Learning the MACD  3 Things to Look for:  Signal Line Crossovers-when the Signal Line and MACD cross  Centerline Crossovers-when the MACD crosses over the zero line.  Divergences- Opposite vertical movement between MACD and stock price.

Bullish Signal Line Crossover Bullish Cross

Bearish Signal Line Crossover Bearish Cross

Center Line Crossovers Zero Centerline

Center Line Crossovers 2. Bullish Centerline Crossover- when the MACD and signal line cross above the zero centerline ( Buy Signal). Bullish Centerline Cross

Center Line Crossovers Bearish Centerline Crossover- when the MACD and signal line cross below the zero centerline. Bearish Centerline Cross

Divergence  Divergence- When the stock price and MACD are moving in opposite directions

Divergence

Bearish or Bullish MACD Crossover

Find the Centerline Crossovers

NEXT MEETING Thursday March 10th, at 6:00 PM In the Finance Lab Finance Lab