Technical Analysis Tarunika Jain Agrawal *

TECHNICAL ANALYSIS DEFINED Technical Analysis is a study of any market using historical price and volume information to forecast future price movements and trends. MAIN ASSUMPTIONSSecurity prices are determined by the forces of demand and supply.Demand and supply of securities are determined by a combination of rational and psychological factors.Stock prices react to new information and tend to follow trends.There is a time lag before the stock prices move from old equilibrium to new equilibrium.

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Volume: The Neglected EssentialsHigh volume confirms trends. If prices rise to a new peak and volume reaches a new high, then prices are likely to retest or exceed that peak.If the market falls to a new low and volume reaches a new high, that bottom is likely to be retested or exceeded. A `climax bottom is almost always retested on low volume, offering an excellent buying opportunity.If volume shrinks while a trend continues, that trend is ripe for a reversal. When a market rises to a new peak on lower volume than its previous peak, look for a shorting opportunity. This technique does not work as well at market bottoms because a decline can persist on low volume. There is a saying on Wall Street, `It takes buying to put stocks up, but they can fall of their own weight.Watch volume during reactions against the trend. When an uptrend is punctuated by a decline, volume often picks up in a flurry of profit-taking. When the dip continues but volume shrinks, it shows that bulls are no longer running or that selling pressure is spent. When volume dries up, it shows that the reaction is nearing an end and the uptrend is ready to resume. It identifies a good buying opportunity. Major downtrends are often punctuated by rallies which begin on heavy volume. Once weak bears have been flushed out, volume shrinks and gives a signal to sell short.*

BASIC TERMS IN TECHNICAL ANALSYISBull: A long buyer of securitiesBear: A short seller of securities.Trend: The market phase when the prices tend to rise or fall on continuous basis. An uptrend is called bull phase while a downtrend is called bear phase.Trading range: The market phase when the stock prices move sideways (in a narrow range)Tick size: Minimum price change required to execute a trade.Crossover : The point on a stock chart when a security and an indicator intersect. Crossovers are used by technical analysts to aid in forecasting the future movements in the price of a stock. In most technical analysis models, a crossover is a signal to either buy or sell.*

Technical vs. Fundamental AnalysisThe main difference between technical analysis and fundamental analysis is the use of financial statements to value equities. Technical analysis is the practice of valuing stocks on past volume and pricing information. Technical analysis combines both the use of past information (how stocks have reacted previously) and "feeling" (how the market is moving the name) to value a security.Fundamental analysis, however, takes a more formal approach. Fundamental analysts review the financial statements of a company and generate metrics, such as price to book value and enterprise value to EBITDA to value a security.*

Advantages of Technical AnalysisTechnical analysis is easy to understand and can be performed relatively quickly, especially with the aid of one of the many types of charting software.Technical analysis does not rely on the use of financial statements for valuation purposes.Rather than strict fundamental valuation, technical analysis takes into account the "feeling" of the market, which is subjective*

Challenges to Technical AnalysisThe past is not always an indication of future results, calling into question the validity of technical analysis.Technical analysis violates the premise of EMH because EMH believers assume that price adjustments happen too quickly to be profitableTechnical analysis is subjective and cannot be used to make consistent decisions.Signals that indicate action in technical analysis may change over time*

Technical indicators1. Contrary opinion Mutual fund cash positions Investment advisory opinions CBOE Put/Call Ratio2. Smart money Confidence index Margin debt General Market Breadth of marketShort interest 4. Stock Price and Volume TechniquesDow TheorySupport and ResistanceMoving average*

PSYCHOLOGICAL INDICATORSCONTRARY OPINION TECHNICIANS

1. Cash position of mutual funds

2. Investor credit balances in brokerage accounts

3. Opinions of investment advisory services

4. CBOE put/call ratio

5. Stock index futures

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1. Cash position of mutual funds mutual fund cashMutual fund ratio = --------------------- total fund assetsMutual fund ratio (MFR) is greater than 13% BEARISHMFR is less than 5% BULLISHNote: Another way to look at this is that when the mutual fund cash ratio is high, contrarians are bullish because these cash holdings indicate potential future buying power in the market.2. Investor credit balances in brokerage accounts3. Opinions of investment advisory services bearish opinionsIAR = --------------------- total opinionsIf the IAR is greater than or equal to 60%, it implies the market is bearish.If the IAR is less than or equal to 20%, it implies advisors are bullishTo a trader, a large number of bearish investment advisory opinions would indicate it was time to buy, again taking the contrary view.

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4. CBOE put/call ratio

Contrary-opinion technicians become bullish as the PCR ratio increases. putsPut call ratio = ------ callsIf the PCR is equal to or greater than 0.50, the market is bearish, so contrarians are bullish.If the PCR is less than or equal to 0.35, the market is bullish, so contrarians are bearish.5. Stock index futuresWhen 75% or more of speculators are bullish, contrarians become bearish.When 25% or less of speculators are bullish, contrarians become bullish.

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SMART MONEY TECHNICIANS

1. Confidence index

2. Short sales by specialists

3. Debit balance in brokerage accounts (margin debt)*

1. Confidence index

quality bond yieldsCI = ------------------------- average low bond yieldsThe confidence index (CI) ratio will increase during periods of confidence (e.g. from 0.07/0.10 = 0.7 to 0.08/0.09 = 0.89). Note that the CI moves in the opposite direction to yield spreads. In periods of confidence, yield spreads narrow and the CI gets bigger. In periods of pessimism, spreads widen and the CI falls.2. Short sales by specialists specialists short salesSpecialist short sale ratio = ------------------------------------- total short sales on the NYSE

If this ratio falls below 30%, its a bullish sign. Specialists are buying.If this ratio goes above 50%, its a bearish sing. Specialists are selling.

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3. Debit balances in brokerage accounts (margin debt).

Debt balances in brokerage accounts represent the level of margin trading, which is usually only done by knowledge investors and traders.An increase in debit balances would indicate an increase in purchasing by astute buyers. This is a bullish sign for smart money technicians.

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General Market indicators Breadth of market this is the measure of stock declines versus stock increases for the day, indicating direction (a technical indication for the market).Short interest this is the measure of stocks sold short. If short interest increases, that is a bullish signal as investors will have to buy the stock to cover the shorts.*

Stock Price and Volume TechniquesDow Theory A theory which says the market is in an upward trend if one of its averages (industrial or transportation) advances above a previous important high, it is accompanied or followed by a similar advance in the other. The theory also says that when both averages dip below previous important lows, it's regarded as an indicator of a downward trend.Tenets of Dow TheoryMarket Discounts EverythingThe Three-Trend Market : Primary, secondary , minor trend Average must confirmedVolume Must Confirm The Trend :Volume should increase in the direction of the primary trend Trend Remains In Effect Until Clear Reversal Occurs*

Support and ResistanceThis is the view, given the psychological nature of investors, that a stock does not often trade above its support and resistance level.Refer to price levels on charts that tend to act as barriers from preventing the price of an asset from getting pushed in a certain direction.Resistance levels are also regarded as aceilingbecause these price levels prevent the market from moving prices upward.Support refers to prices on a chart that tend to act as a floor by preventing the price of an asset from being pushed downward.

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Charts A chart is simply a graphical representation of a series of prices over a set time frame. For example, a chart may show a stock's price movement over a one-year period, where each point on the graph represents theclosing pricefor each day the stock is traded. Time scale, Price scale, price pointsThe chart types are: the line chart, the bar chart, the candlestick chart and the point and figure chart.

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Line ChartThe most basic of the four charts is theline chartbecause it represents only the closing prices over a set period of time. Do not provide visual information of the trading range for the individual points such as the high, low and opening prices. *

Bar ChartsAdds several more key pieces of information to each data point. Made up of a series of vertical lines that represent each data point. This vertical line represents the high and low for the trading period, along with the closing price. The close and open are represented on the vertical line by a horizontal dash. The opening price - left side of the vertical bar. Closing price - dash on the right side of the bar. Generally, if the left dash (open) is lower than the right dash (close) then the bar will be shaded black, representing an up period for the stock, which means it has gained value. A bar that is coloured red signals that the stock has gone down in value over that period. When this is the case, the dash on the right (close) is lower than the dash on the left (open). *

Candlestick Charts

It is with a thick body, called thereal body, and usually a line extending above and below it, called theupper shadowandlower shadow, respectively. The top and bottom of the real body represents the opening and closing pricesThe top of the upper shadow represents the high price, while the bottom of the lower shadow represents the low price. While the candlestick chart shows basically the same information as the bar chart, certain patterns are more apparent in the candlestick chart. Whether the top represents the opening or closing price depends on the colour of the real bodyif it iswhite, then the top represents the close;black, or some other dark colour, indicates that the top was the opening price. The length of the real body shows the difference between the opening and closing prices. Obviously, white real bodies indicate bullishness, while black real bodies indicate bearishness, and their pattern is easily observable in a candlestick chart.

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BAR chart Candlestick *

Chart pattern A reversal pattern signals that a prior trend will reverse upon completion of the pattern. A continuation pattern, on the other hand, signals that a trend will continue once the pattern is complete.Head and shouldersis a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend.

Double Tops and Bottoms, Triangles, Flag and Pennant, Wedge, Gaps : Other patterns

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IMPORTANT TECHNICAL INDICATORSI Trend following IndicatorsThey work best when the market is in a trending phase and provide buy/sell signals.Avoid using them when market is in a trading range.Price indicators such as SMA, EMA, MACD and MACD-HistogramVolume indicators such as OBV, A-D index etc.

II OscillatorsDuring market trend, they support trend-following indicators and help in timing of buy/sell signals.When market is in a trading range they work on their own and provide buy/sell signals.Price oscillators include momentum, ROC, Stochastic and RSI.Volume oscillators are also used to get trading signalsThere are also hybrid oscillators such as Force Index.*

Moving averageThis measures the average moves of a stock over a specified time period. This measure removes daily fluctuations in a price change and the trend can be more readily discerned. Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels.When a moving average is heading upward and the price is above it, the security is in an uptrend. Conversely, a downward sloping moving average with the price below can be used to signal a downtrend.

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Moving Averages *

SMA (Simple moving averages) Most common method used to calculate the moving average of pricesIt 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. For example, in a 10-day moving average, the last 10 closing prices are added together and then divided by 10.Increasing the number of time periods in the calculation is one of the best ways to gauge the strength of the long-term trend and the likelihood that it will reverse.Make the average less responsive to changing pricesThe critics argue that the most recent data is more important and, therefore, it should also have a higher weighting. *

EMA (EXPONENTIAL MOVING AVERAGE)

A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data. The exponential moving average is also known as "exponentially weighted 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). In general, the 50- and 200-day EMAs are used as signals of long-term trends.

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SIMPLE MOVING AVERAGE (SMA)N Pt t=1SMA = --------- Nwhere N is the moving average windowEXPONENTIAL MOVING AVERAGE (EMA)EMAtoday = K Pricetoday + (1 - K) x EMAyesterdayWhere K = 2/N+1

A 15-period EMA rises and falls faster than a 15-period SMA. This slight difference doesn't seem like much, but it is an important factor to be aware of since it can affect returns.*

Trading rules Another method of determining momentum is to look at the order of a pair of moving averages. When a short-term average is above a longer-term average, the trend is up. On the other hand, a long-term average above a shorter-term average signals a downward movement in the trend.Moving average trend reversals are formed in two main ways: when the price moves through a moving average and when it moves through moving average crossovers. The first common signal is when the price moves through an important moving average. For example, when the price of a security that was in an uptrend falls below a 50-period moving average, it is a sign that the uptrend may be reversing.When EMA goes flat and only wiggles a little, it identifies an aimless, trendless market. Do not trade using a trend-following method.*

Trading rules The other signal of a trend reversal is when one moving average crosses through another. For example, if the 15-day moving average crosses above the 50-day moving average, it is a positive sign that the price will start to increase.If the periods used in the calculation are relatively short, for example 15 and 35, this could signal a short-term trend reversal. On the other hand, when two averages with relatively long time frames cross over (50 and 200, for example), this is used to suggest a long-term shift in trend.*

Major component of MACD

1. MACD line. Its a graphical representation of difference of fastexponential moving averageand slower Exponential moving average. 2. MACD Signal line is 9 period EMA of the MACD line. 3. Zero Line. It is constant line with default zero line. It also acts as signal line. 4. MACD Histogram- It is plot of difference between MACD line and signal line.

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MOVING AVERAGE CONVERGENCE-DIVERGENCE (MACD)MACD line or fast line = EMAR EMA26 Signal line or slow line = EMA9 of MACD lineTrading Rules of Cross-oversWhen the fast MACD line crosses above the slow Signal line, it gives a buy signal. Go long, and place a protective stop below the latest minor low.When the fast line crosses below the slow line, it gives a sell signal. Go short, and place a protective stop above the latest minor high.Trading Rules of DivergenceDivergences between MACD and prices occur only a few times a year in any given market, but they give some of the most powerful messages in technical analysis. These divergences identify major turning points and give `extra-strength buy or sell signals.

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MACD HISTOGRAMMACD-Histogram = MACD line Signal line

Trading RulesBuy when MACD-Histogram stops falling and ticks up. Place a protective stop below the latest minor low.Sell short when MACD-Histogram stops rising and ticks down. Place a protective stop above the latest minor high.Sell short when MACD-Histogram ticks down from its second, lower top, while prices are at a new high. Place a protective stop above the latest high.Buy when MACD-Histogram ticks up from its second, more shallow bottom while prices are at a new low. Place a protective stop below the latest low.

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Advantages of MACDa. It is solid indicator that helps to identify stock trends. b. It provides signal much before moving average crossover. Disadvantages of MACDa. It being an lagging indicator it gives signal after trend has started. b. In volatile market it gives too many wrong signal. c. MACD price divergence by many is considered as unreliable as it depends on derivative of derivative therefore it is much far from its base.

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BOLLINGER BANDS A band plotted two standard deviations away from a simple moving average, developed by famous technical trader John Bollinger.Because standard deviation is a measure of volatility, Bollinger Bands adjust themselves to the market conditions. When the markets become more volatile, the bands widen (move further away from the average), and during less volatile periods, the bands contract (move closer to the average). The tightening of the bands is often used by technical traders as an early indication that the volatility is about to increase sharply.This is one of the most popular technical analysis techniques. The closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market.

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When stock prices continually touch the upper Bollinger Band, the prices are thought to beoverbought; conversely, when they continually touch the lower band, prices are thought to beoversold, triggering a buy signal.*

'ON-BALANCE VOLUME (OBV)'

A momentum indicator that uses volume flow to predict changes in stock price.Underlying belief - when volume increases sharply without a significant change in the stocks price, the price will eventually jump upward, and vice versa.Based on the distinction between smart money namely, institutional investors and less sophisticated retail investors. As mutual funds and pension funds begin to buy into an issue that retail investors are selling, volume may increase even as the price remains relatively level. Eventually, volume drives the price upward. At that point, larger investors begin to sell, and smaller investors begin buying.If closing price > prior close price : Current OBV = Previous OBV + Current VolumeIf closing price < prior close price : Current OBV = Previous OBV - Current VolumeIf closing price = prior close price then: Current OBV = Previous OBV (no change)*

Expect prices to move lower if OBV is falling while prices are either flat or moving up.The absolute value of OBV is not important. Look for potential support or resistance levels after identifying trend. *

C - OA D = --------- x Daily trading volumeH LIt is a volume-based indicator designed to measure the cumulative flow of money into and out of a securityA momentum indicator that attempts to gauge supply and demand by determining whether investors are generally "accumulating" (buying) or "distributing" (selling) a certain stock by identifying divergences between stock price and volume flow. For example, many up days occurring with high volume in a downtrend could signal that the demand for the underlying is starting to increase. In practice, this indicator is used to find situations in which the indicator is heading in the opposite direction as the price. Once this divergence has been identified, the trader will wait to confirm the reversal and make his or her transaction decisions using other technical indicators.

*ACCUMULATION DISTRIBUTION INDEX

The Accumulation Distribution Line is a cumulative measure of each period's volume flow, or money flow. A high positive multiplier combined with high volume shows strong buying pressure that pushes the indicator higher. Conversely, a low negative number combined with high volume reflects strong selling pressure that pushes the indicator lower. Money Flow Volume accumulates to form a line that either confirms or contradicts the underlying price trend. An uptrend in prices with a downtrend in the Accumulation Distribution Line suggests underlying selling pressure (distribution) that could foreshadow a bearish reversal on the price chart. A downtrend in prices with an uptrend in the Accumulation Distribution Line indicate underlying buying pressure (accumulation) that could foreshadow a bullish reversal in prices.*

VOLUME OSCILATOR It displays the relation between the two moving averages of a securitys volume. Short-term volume MAVO = -------------------------------- Long-term volume MAThe equilibrium line represents points when the two MAs are at identical level.Buy SignalsRising prices coupled with increase in volumeFalling prices coupled with declining volumeSell SignalsIf volume increases when prices fallVolume decreases when prices rise.*

Momentum The rate of acceleration of a security's price or volume. The idea is that price is more likely to keep moving in the same direction than to change directions. In technical analysis, momentum is considered an oscillator and is used to help identify trendlines.This strategy relies on short-term movements in a stock's price rather than fundamental value, and it is not recommended for novices.MOM = Ptoday Ptoday-N where N is the oscillator window.Hence, if the current price is higher than the price in the past, then the Momentum indicator is positive. In contrast, when the current price is lower than the price in the past, then the Momentum indicator is negative.The faster the security rises (the greater the period-over-period price change), the larger the increase in momentum.

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Momentum Buy SignalWhen the Momentum indicatorcrosses above the zero line. The crossing of the zero line implies that the price of the stock, future, or currency pair is reversing course, either by having bottomed out or by breaking out above recent highs, a bullish signal.Momentum Sell SignalMomentum indicatorcrosses below the zero line. A cross of the zero line can generally mean two things: the future, currency pair, or stock's price has topped out and is reversing or that the price has broken below recent lows, either way, a bearish signal.

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Rate of change (ROC) Measures the percent change in price from one period to the next.In other words, measures the speed at which prices are changing.RoC = Ptoday/Ptoday-N The plot forms an oscillator that fluctuates above and below the zero line as the Rate-of-Change moves from positive to negative. As a momentum oscillator, ROC signals include centerline crossovers, divergences and overbought-oversold readings.In general, prices are rising as long as the Rate-of-Change remains positive. Conversely, prices are falling when the Rate-of-Change is negative. ROC expands into positive territory as an advance accelerates. ROC dives deeper into negative territory as a decline accelerates. There is no upward boundary on the Rate-of-Change. The sky is the limit for an advance. There is, however, a downside limit. Securities can only decline 100%, which would be to zero. Even with these lopsided boundaries, Rate-of-Change produces identifiable extremes that signaloverboughtand oversold conditions.*

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Relative STRENGTH INDEX (RSI) RSI (a momentum indicator) compares the average price change of the advancing periods with the average change of the declining periods.RSI = 100 - 100/(1 + RS)Where RS = Average of upturn changes over selected number of days/ Average number of downturn changes over selected number of daysRSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. If the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued.One can also use 20/80 as the low/high boundary

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StochasticIt compares where a securitys price closed relative to its price range over a given time period. Displayed as two lines. The main line is called %K. The second line, called %D, is aMoving Averageof %K. The theory behind this indicator is that in an upward-trending market, prices tend to close near their high, and during a downward-trending market, prices tend to close near their low. Transaction signals occur when the %K crosses through a three-period moving average called the "%D".The stock may have opened at $10.00, traded as low as $9.75 and as high as $10.75, and closed at $10.50 for the day. The price action of this example is between $9.75 (the low of the day) and $10.75 (the high of the day). If the issue, however, is currently in a downtrend cycle, the closing prices will tend to close at or near the low of the trading session.Low readings (below 20) indicate that price is near its low for the given time period. High readings (above 80) indicate that price is near its high for the given time period.*

Interpreting the indicatorBuy when the Oscillator (either %K or %D) falls below a specific level (e.g., 20) and then rises above that level. Sell when the Oscillator rises above a specific level (e.g., 80) and then falls below that level;Buy when the %K line rises above the %D line and sell when the %K line falls below the %D line;Look for divergences. For instance: where prices are making a series of new highs and the Stochastic Oscillator is failing to surpass its previous highs.

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The Stochastic Oscillator has four variables:%K periods. This is the number of time periods used in the stochastic calculation;%K Slowing Periods. This value controls the internal smoothing of %K. A value of 1 is considered a fast stochastic; a value of 3 is considered a slow stochastic;%D periods. his is the number of time periods used when calculating a moving average of %K;%D method. The method (i.e., Exponential, Simple, Smoothed, or Weighted) that is used to calculate %D.%K = (CLOSE-LOW(%K))/(HIGH(%K)-LOW(%K))*100Where: CLOSE is todays closing price; LOW(%K) is the lowest low in %K periods; HIGH(%K) is the highest high in %K periods. The %D moving average is calculated according to the formula:%D = SMA(%K, N) , Where: N is the smoothing period; SMA is the Simple Moving Average.*

The K line is the fastest and the D line is the slower of the two lines. The investor needs to watch as the D line and the price of the issue begin to change and move into either the overbought (over the 80 line) or the oversold (under the 20 line) positions. The investor needs to consider selling the stock when the indicator moves above the 80 level. Conversely, the investor needs to consider buying an issue that is below the 20 line and is starting to move up with increased volumeThe Stochastic Oscillator doesn't follow price, it doesn't follow volume or anything like that. It follows the speed or the momentum of price. As a rule, the momentum changes direction before price. As such, bullish and bearish divergences in the Stochastic Oscillator can be used to foreshadow reversals. This was the first, and most important, signal that Lane identified. Lane also used this oscillator to identify bull and bear set-ups to anticipate a future reversal. Because the Stochastic Oscillator is range bound, is also useful for identifying overbought and oversold levels.*

FORCE INDEX : A HYBRID OSCILLATORThe force index is a technical analysis indicator, that calculates the strength of a price change using a combination of the prices and the volume. The force index is displayed as a single line that oscillates above and below zero.The force index is different from most indicators in that it uses the price change, the direction of the price change, and the volume.FI = Volumetoday x (Price today) Price (yesterday)Estimate the two day EMA of Force IndexBuy when a two-day EMA of Force Index turns negative during uptrendsSell short when a two-day EMA of Force Index turns positive in downtrends.Bullish divergence between two-day EMA of Force Index and price give strong buy signals. A bullish divergence occurs when prices fall to a new low, while Force Index makes a more shallow bottom.Bearish divergences between two-day EMA of Force Index and price give strong sell signals. A bearish divergence occurs when prices rally to a new high, while Force Index traces a lower second top.

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Caution Needed Indicators indicate. This may sound straightforward, but sometimes traders ignore the price action of a security and focus solely on an indicator. Indicators filter price action with formulas. As such, they are derivatives and not direct reflections of the price action. This should be taken into consideration when applying analysis. Any analysis of an indicator should be taken with theprice actionin mind. What is the indicator saying about the price action of a security? Is the price action getting stronger? Weaker?In context of other tools. Even though it may be obvious when indicators generatebuyandsellsignals, the signals should be taken in context with other technical analysis tools. An indicator may flash a buy signal, but if the chart pattern shows a descending triangle with a series of declining peaks, it may be a false signal.*

Choosecarefullyandmoderately. Attempts to cover more than five indicators are usually futile. It is best to focus on two or three indicators and learn their intricacies inside and out. Try to choose indicators that complement each other, instead of those that move in unison and generate the same signals. For example, it would be redundant to use two indicators that are good for showingoverboughtandoversoldlevels, such as Stochastics and RSI. Both of these indicators measure momentum and both have overbought/oversold levels

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William %R It was developed by Larry Williams and compares a stock's close to the high-low range over a certain period of time, usually 14 days.It is used to determine market entry and exit points. The Williams %R produces values from 0 to -100, a reading over 80 usually indicates a stock is oversold, while readings below 20 suggests a stock is overbought.Use %R to gauge the six month trend for a security. 125-day %R covers around 6 months. Prices are above their 6-month average when %R is above -50, which is consistent with an uptrend. Readings below -50 are consistent with a downtrend. In this regard, %R can be used to help define the bigger trend (six months).*

Williams %R is a momentum indicator that is the inverse of the Fast Stochastic Oscillator. Also referred to as %R, Williams %R reflects the level of the close relative to the highest high for the look-back period. In contrast, the Stochastic Oscillator reflects the level of the close relative to the lowest low. As a result, the Fast Stochastic Oscillator and Williams %R produce the exact same lines, only the scaling is different. %R = (Highest High - Close)/(Highest High - Lowest Low) * -100Where, Lowest Low = lowest low for the look-back period; Highest High = highest high for the look-back period; %R is multiplied by -100 correct the inversion and move the decimal.The default setting for Williams %R is 14 periods, which can be days, weeks, months or an intraday timeframe. A 14-period %R would use the most recent close, the highest high over the last 14 periods and the lowest low over the last 14 periods.*

Leading indicator Leading indicators are designed to lead price movements. Most represent a form of pricemomentumover a fixed look-back period, which is the number of periods used to calculate the indicator. Examples: Momentum,Relative Strength Index(RSI),Stochastic Oscillatorand Williams %R.

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