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Technical Indicators

Technical indicators are mathematical calculations based on price, volume, or open interest that help traders analyze market behavior. This guide covers the indicators used throughout the TradeAnon platform.

Moving Averages​

Moving averages smooth price data to identify trend direction and potential support/resistance levels.

Simple Moving Average (SMA)​

The arithmetic mean of prices over a specified period.

Calculation:

SMA(N) = (P₁ + P₂ + ... + Pₙ) / N

Common Periods:

  • 20-day: Short-term trend
  • 50-day: Intermediate trend
  • 100-day: Medium-term trend
  • 200-day: Long-term trend

Usage:

  • Price above SMA suggests uptrend
  • Price below SMA suggests downtrend
  • SMA crossovers signal trend changes

Exponential Moving Average (EMA)​

A weighted moving average giving more importance to recent prices.

Calculation:

EMA = (Price × α) + (Prior EMA × (1 - α))
where α = 2 / (N + 1)

Common Periods:

  • 9-day: Very short-term
  • 21-day: Short-term momentum
  • 50-day: Intermediate reference

Advantages over SMA:

  • More responsive to recent price changes
  • Reduces lag in trend identification
  • Better for shorter-term trading

Moving Average Applications​

Trend Identification:

  • Price > 200 SMA: Long-term uptrend
  • Price < 200 SMA: Long-term downtrend
  • 50 SMA > 200 SMA: Bullish structure
  • 50 SMA < 200 SMA: Bearish structure

Support/Resistance:

  • Moving averages often act as dynamic support in uptrends
  • Moving averages often act as dynamic resistance in downtrends
  • Key levels: 21 EMA, 50 SMA, 200 SMA

Crossovers:

  • Golden Cross: 50 SMA crosses above 200 SMA (bullish)
  • Death Cross: 50 SMA crosses below 200 SMA (bearish)

Volatility Indicators​

Average True Range (ATR)​

Measures average price range including gaps.

True Range Calculation:

TR = max(High - Low, |High - Prior Close|, |Low - Prior Close|)

ATR Calculation:

ATR(N) = EMA(True Range, N periods)

Common Period: 14 days

Applications:

  • Position sizing (risk per share = ATR × multiplier)
  • Stop-loss placement (stop at 2× ATR below entry)
  • Volatility assessment (higher ATR = more volatile)
  • Comparing volatility across securities

ATR as Percentage:

ATR% = ATR / Close × 100

Useful for comparing volatility across different-priced securities.

Momentum Indicators​

Relative Strength Index (RSI)​

Momentum oscillator measuring speed and magnitude of price changes.

Calculation:

RSI = 100 - (100 / (1 + RS))
where RS = Average Gain / Average Loss over N periods

Standard Period: 14 days

Interpretation:

  • RSI > 70: Overbought (potentially due for pullback)
  • RSI < 30: Oversold (potentially due for bounce)
  • RSI 40-60: Neutral zone

Divergences:

  • Bullish divergence: Price makes lower low, RSI makes higher low
  • Bearish divergence: Price makes higher high, RSI makes lower high

Limitations:

  • Can remain overbought/oversold for extended periods in strong trends
  • Works better in ranging markets than trending markets

Rate of Change (ROC)​

Percentage change in price over a specified period.

Calculation:

ROC = (Price_today - Price_N_ago) / Price_N_ago × 100

Common Periods: 5, 10, 21, 63, 252 days

Applications:

  • Momentum measurement
  • Sector rotation analysis
  • Mean reversion signals at extremes

Relative Strength​

Relative Strength (RS) Line​

Compares asset performance to a benchmark (typically S&P 500).

Calculation:

RS = Asset Price / Benchmark Price

Interpretation:

  • Rising RS line: Outperforming benchmark
  • Falling RS line: Underperforming benchmark
  • RS making new highs: Strong relative performance

RS Moving Average:

RS-MA = EMA(RS, 21)

RS above its moving average indicates improving relative performance.

RS New Highs​

When the RS line reaches a new 52-week high:

  • Indicates exceptional relative strength
  • Often precedes continued outperformance
  • Key signal in momentum strategies

Volume Indicators​

Relative Volume (RVOL)​

Current volume compared to historical average.

Calculation:

RVOL = Current Volume / Average Volume (N days)

Common Baseline: 20-day average

Interpretation:

  • RVOL < 1: Below average activity
  • RVOL 1-2: Normal activity
  • RVOL 2-5: Elevated interest
  • RVOL > 5: Significant activity
  • RVOL > 10: Major event

Volume-Weighted Average Price (VWAP)​

Average price weighted by volume traded.

Calculation:

VWAP = Σ(Price × Volume) / Σ(Volume)

Applications:

  • Institutional execution benchmark
  • Intraday support/resistance
  • Fair value reference

Trading Rules:

  • Price above VWAP: Bullish intraday bias
  • Price below VWAP: Bearish intraday bias

Extension Metrics​

ATR Extension from Moving Average​

Distance from a moving average measured in ATR units.

Calculation:

Extension = (Close - MA) / ATR

Interpretation:

  • +2 ATR from 50 SMA: Extended, potential pullback
  • -2 ATR from 50 SMA: Oversold, potential bounce
  • Within ±1 ATR: Normal range

Applications:

  • Identifying overextended conditions
  • Mean reversion entries
  • Profit-taking zones

Distance to 52-Week High​

Calculation:

Distance = (52-Week High - Close) / 52-Week High × 100

Interpretation:

  • 0-5%: Near highs (strong)
  • 5-15%: Within striking distance
  • 15-30%: Significant distance

  • 30%: Far from highs

Indicator Combinations​

Webster Power Trend Conditions​

Combines multiple indicators for trend confirmation:

  1. Condition A: Low > 21 EMA (10-day streak)
  2. Condition B: 21 EMA > 50 SMA (5-day streak)
  3. Condition C: 50 SMA rising (vs 10 days ago)
  4. Condition D: Green candle (Close > Open)

Momentum Trend Template​

Classic momentum screen combining:

  • Price > 50 SMA
  • 50 SMA > 100 SMA > 150 SMA (stacked MAs)
  • RS line in uptrend
  • Within 20% of 52-week high

Best Practices​

Indicator Selection​

  • Use indicators for different purposes (trend, momentum, volatility)
  • Avoid redundant indicators (e.g., multiple similar oscillators)
  • Understand what each indicator measures
  • Test combinations before trading

Context Matters​

  • No indicator works in all market conditions
  • Trend indicators work best in trending markets
  • Oscillators work best in ranging markets
  • Adjust interpretation based on market regime

Confirmation​

  • Use multiple timeframes for confirmation
  • Combine indicators with price action
  • Wait for confirmation rather than anticipating signals
  • Accept that no indicator is predictive