the security is likely to rise or fall. MACD is frequently used in conjunction with other technical indicators such as the RSI (Relative Strength Index, see further down) and the stochastic oscillator (see further down).
• Momentum – is an oscillator designed to measure the rate of price change, not the actual price level. This oscillator consists of the net difference between the current closing price and the oldest closing price from a predetermined period.
The formula for calculating the momentum (M) is:
M = CCP – OCP
Where: CCP – current closing price
OCP – old closing price
Momentum and rate of change (ROC) are simple indicators showing the difference between today's closing price and the close N days ago. "Momentum" is simply the difference, and the ROC is a ratio expressed in percentage. They refer in general to prices continuing to trend. The momentum and ROC indicators show that by remaining positive, while an uptrend is sustained, or negative, while a downtrend is sustained.
A crossing up through zero may be used as a signal to buy, or a crossing down through zero as a signal to sell. How high (or how low, when negative) the indicators get shows how strong the trend is.
• RSI - Relative Strength Index - a technical momentum indicator, devised by Welles Wilder, measures the relative changes between the higher and lower closing prices. RSI compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset.
The formula for calculating RSI is:
RSI = 100 – [100 / (1 + RS)]
Where: RS - average of N days up closes, divided by
average of N days down closes
N - predetermined number of days
The RSI 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. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued. A trader using RSI should be aware that large surges and drops in the price of an asset
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