Fibonacci, Force Index, Fractals, Gator Oscillator, Linear Regression

 

Fibonacci Arcs, Fans and Retracement


Fibonacci Arcs is one of the four most common studies in Fibonacci for analyze markets in terms of support and resistance levels.

Fibonacci Arcs are created by finding the lowest and highest prices for a certain market and then an invisible trendline is drawn between these two points. Three curves are then drawn which intersect this trendline at the key Fibonacci levels of 38.2%, 50% and 61.8%. The prices of the asset cross through key levels when the transaction decision was made.

Most of the times, Fibonacci Arcs and Fibonacci Fans are plotted in the same chart. The point of interactions of these lines is determined the supports and resistance levels.

Arc:



Arc and Fans:


Retracement:

Fibonacci Retracements is the most heavily used Fibonacci tool. The calculation of the Fibonacci Retracement levels will identify significant lows to significant highs. The initial difference (low to high or high to low) should be retraced from those prices using a ratio of the Fibonacci sequence.

The three levels of Fibonacci retracements are 38.2%, 50% and 61.8 %. There is no relationship between 50 % and the Fibonacci. The reason that the 50% is used by traders is that there is a tendency for instruments to reverse after retracing half of the previous move.

 
 
 
 

 

Force Index



This indicator aims to identify divergences and buy\sell signals. It considered the volumes of the instrument suggesting that when there is a lack of volume the market is prone to a reversal.

 

Calculation
Force Index = (Close of Today - Close of Yesterday) * Volume

Smoothing the Force Index is advised, as its raw values may be irregular which may lead to in false trading signals. Smoothing can be performing using the Exponential Moving Average over the Force Index.

Signals

  • When the Index is negative in a period of increasing tendency you should buy;
  • When the price reaches a new low, buy;
  • When the Index is Positive in a period of decreasing tendency you should sell;
  • When the price reaches a new high, sell;
  • If price changes do not correlate to the corresponding changes in volume, the force indicator stays on one level, which tells you the trend is going to change soon.


For short term trading use a 2-day EMA, and for intermediate term trading a 13-day EMA is recommended.

 

Fractals


The indicator looks at successive highs and lows of an instrument to determine price trends. It identifies a series of at least five successive bars, with the middle bar being the highest high and then the next two highest highs on either side. Or, on the reverse, the middle bar will be the lowest low with the next two lowest lows on either side. The fractals are indicated with the up and down arrows.

As this is a lagging indicator it is advised that the indicator is not used alone, but rather in conjuction with other indicators. The recommended indicator to use it with is the Alligator.

A bearish factual turning point is identified when there is a pattern of a highest high in the middle and two lower highs on each side.

A bullish factual turning point is identified when there is a pattern of a lowest low in the middle and two higher lows on each side.

Signals in conjunction with the Alligator

  • Do not close a buy transaction if the fractal is lower than the Alligator’s Teeth
  • Do not close a sell transaction if the fractal is higher than the Alligator’s Teeth
 
 

Gator Oscillator


Bill Williams developed this indicator and his opinion was that a trader should not over-rely on technical or fundamental indicators, the market is constantly changing and hence you cannot always assume a pattern or theory from the past. Instead a trader needs to understand the structure of the market.

This indicator assumes that they are a consistent design in the market. The indicator is similar, and based on, the Alligator indicator.

Lines are blue, red or a combination of the two. A line is blue when prices are moving upwards, red when prices are moving downwards and mixed when prices are varying up and down.




Interpretation

  • Gator Awaking - Signifying the completion of a cycle, when the bars display different colors (any combination of red and green), the gator is 'awaking'.
  • Gator Eating - When both the bar below and the one above the centerline are green, the indicator is said to be eating.
  • Gator Satisfied - When, after an 'eating' phase, the one of the upper or lower bars around the centerline turn red, the Gator is said to be satisfied (or ‘filled out’)
  • Gator Sleeping - When both bars above and below the centerline are red, the gator is sleeping.

Hence one should buy when the Gator is awaking and starts eating, and sell when the Gator fills out (is satisfied) and goes to sleep.

 

 

Linear Regression



The interpretation of the Linear Regression Indicator is to forecast tomorrow’s price by plotting today’s price, with the expectation for the prices to return to the realistic levels even if the price is higher or lower than the forecasts. The Linear Regression Indicator shows where the prices “should” be trading on a statistical basis.

The Linear Regression Indicator schedules the trend of a market instrument’s price on consecutive days. A calculation of the Linear Regression Trendline with the “least square fit” method defines this trend and helps to minimize the distance between the data point and a Linear Regression Trendline.

The trend identification and trend following is similar to moving averages using the linear regression indicator. The regression line is a straight line fitted to a series of data points and is not the same as the indicator. The benefit of linear regression indicator over a normal moving average is that it reacts faster to directional changes due to it having less lag than the moving average.


Blue lines indicate Regression indicator

Calculation:
Step 1: Make a chart of your data, filling in the columns in the same way as you would fill in the chart if you were finding a Correlation Coefficient.

Step 2: Use the equations:

Where y = a + bx

Step 3: Insert the values into the equation.

Signals:

  • If the current price is above the linear regression line it suggests that the price is unrealistically high and hence the price will come down soon – time to sell.
  • Where the current price is below the line then the price is too low so the expectation is the price will rise – time to buy.

 

 

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