Some explanations below for the one's interested on HOW the Indicators work:
RSI, SLOW STOCHASTIC, MOVING AVERAGES, MACD, VOLUME.
INDICATORS
RSI
The Relative Strength Index (RSI) is an extremely useful and popular momentum oscillator. The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to 100. It takes a single parameter, the number of time periods to use in the calculation.
Overbought/Oversold
Wilder recommended using 70 and 30 and overbought and oversold levels respectively. 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. Some traders identify the long-term trend and then use extreme readings for entry points. If the long-term trend is bullish, then oversold readings could mark potential entry points.
Divergences
Buy and sell signals can also be generated by looking for positive and negative divergences between the RSI and the underlying stock. For example, consider a falling stock whose RSI rises from a low point of (for example) 15 back up to say, 55. Because of how the RSI is constructed, the underlying stock will often reverse its direction soon after such a divergence. As in that example, divergences that occur after an overbought or oversold reading usually provide more reliable signals.
Centerline Crossover
The centerline for RSI is 50. Readings above and below can give the indicator a bullish or bearish tilt. On the whole, a reading above 50 indicates that average gains are higher than average losses and a reading below 50 indicates that losses are winning the battle. Some traders look for a move above 50 to confirm bullish signals or a move below 50 to confirm bearish signals.
SLOW STOCHASTIC
The Slow Stochastic applies further smoothing to the Stochastic oscillator, to reduce volatility and improve signal accuracy.
Trading Signals
Trading signals are the same as for the Stochastic oscillator.
Ranging Markets
Signals are listed in order of their importance:
Go long on bullish divergence (on %D) where the first trough is below the Oversold level.
Go long when %K or %D falls below the Oversold level and rises back above it.
Go long when %K crosses to above %D.
Short signals:
Go short on bearish divergence (on %D) where the first peak is above the Overbought level.
Go short when %K or %D rises above the Overbought level then falls back below it.
Go short when %K crosses to below %D.
Place stop-losses below the most recent minor Low (or above the most recent minor High) when going long (or short).
Trending Markets
Only take signals in the direction of the trend and never go long when Stochastic is overbought, nor short when oversold.
The shape of a Stochastic bottom gives some indication of the ensuing rally. A narrow bottom that is not very deep indicates that bears are weak and that the following rally should be strong. A broad, deep bottom signals that bears are strong and that the rally should be weak.
The same applies to Stochastic tops. Narrow tops indicate that the bulls are weak and that the correction is likely to be severe. High, wide tops indicate that bulls are strong and the correction is likely to be weak.
Use trailing buy- and sell-stops to enter trades and protect yourself with stop-losses.
Long:
If the Stochastic (%K or %D) falls below the Oversold line, place a trailing buy stop. When you are stopped in, place a stop loss below the Low of the recent down-trend (the lowest Low since the signal day).
Short:
If Stochastic rises above the Overbought line, place a trailing short stop. When you are stopped in, place a stop loss above the High of the recent up-trend (the highest High since the signal day).
MOVING AVERAGES
Moving averages are one of the most popular and easy to use tools available to the technical analyst. They smooth a data series and make it easier to spot trends, something that is especially helpful in volatile markets. They also form the building blocks for many other technical indicators and overlays.
Simple Moving Average (SMA)
A simple moving average is formed by computing the average (mean) price of a security over a specified number of periods. While it is possible to create moving averages from the Open, the High, and the Low data points, most moving averages are created using the closing price.
All moving averages are lagging indicators and will always be "behind" the price. Because moving averages are lagging indicators, they fit in the category of trend following indicators. When prices are trending, moving averages work well.
Exponential Moving Average (EMA)
In order to reduce the lag in simple moving averages, technicians often use exponential moving averages (also called exponentially weighted moving averages). EMAs reduce the lag by applying more weight to recent prices relative to older prices. The weighting applied to the most recent price depends on the specified period of the moving average. The shorter the EMA's period, the more weight that will be applied to the most recent price.
The simple moving average obviously has a lag, but the exponential moving average may be prone to quicker breaks.
In its simplest form, a security's price can be doing only one of three things: trending up, trending down or trading in a range. An uptrend is established when a security forms a series of higher highs and higher lows. A downtrend is established when a security forms a series of lower lows and lower highs. A trading range is established if a security cannot establish an uptrend or downtrend. If a security is in a trading range, an uptrend is started when the upper boundary of the range is broken and a downtrend begins when the lower boundary is broken.
Best suited for trend identification and trend following purposes, not for prediction.
MACD
Moving Average Convergence Divergence (MACD) is one of the simplest and most reliable indicators available. MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics. These lagging indicators are turned into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits. MACD is a centered oscillator and the guidelines for using centered oscillators apply.
The most popular formula for the "standard" MACD is the difference between a security's 26-day and 12-day exponential moving averages
Using shorter moving averages will produce a quicker, more responsive indicator, while using longer moving averages will produce a slower indicator, less prone to whipsaws.
Of the two moving averages that make up MACD, the 12-day EMA is the faster and the 26-day EMA is the slower. Closing prices are used to form the moving averages. Usually, a 9-day EMA of MACD is plotted along side to act as a trigger line. A bullish crossover occurs when MACD moves above its 9-day EMA and a bearish crossover occurs when MACD moves below its 9-day EMA.
MACD measures the difference between two moving averages. A positive MACD indicates that the 12-day EMA is trading above the 26-day EMA. A negative MACD indicates that the 12-day EMA is trading below the 26-day EMA. If MACD is positive and rising, then the gap between the 12-day EMA and the 26-day EMA is widening. This indicates that the rate-of-change of the faster moving average is higher than the rate-of-change for the slower moving average. Positive momentum is increasing and this would be considered bullish. If MACD is negative and declining further, then the negative gap between the faster moving average (green) and the slower moving average (blue) is expanding. Downward momentum is accelerating and this would be considered bearish. MACD centerline crossovers occur when the faster moving average crosses the slower moving average.
BOLLINGER BANDS
Developed by John Bollinger, Bollinger Bands are an indicator that allows users to compare volatility and relative price levels over a period time. The indicator consists of three bands designed to encompass the majority of a security's price action.
1.A simple moving average in the middle
2.An upper band (SMA plus 2 standard deviations)
3.A lower band (SMA minus 2 standard deviations)
Standard deviation is a statistical term that provides a good indication of volatility. Using the standard deviation ensures that the bands will react quickly to price movements and reflect periods of high and low volatility. Sharp price increases (or decreases), and hence volatility, will lead to a widening of the bands.
VOLUME
If the prevailing trend is up, volume should be heavier on the up days and lighter on the the down days. If the trend was down, volume should be heavier on the down days, with lighter volume on the up days
When volume moves in the opposite direction of the price, this is called divergence.
One of the reasons why volume has a tendency to diminish during periods of indecision is for just that reason. During periods of sideways movement, often traders will avoid a market, preferring to commit their funds once a clear-cut breakout is seen. However, while it's typical for volume to diminish during these times, volume can give clues as to possible future direction by measuring the level of conviction of the buyers and the sellers. Seeing if there's heavier volume on the up days or on the down days could be useful in getting positioned during a sideways move or a formation of a pattern. The idea being that if there's more volume on the up days than the down days, the buyers are probably the more aggressive and the market should more than likely breakout to the upside. The reverse being true if the volume is heavier on the down days, with the market likely to breakout to the downside.
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