A technical trader uses charts and indicators to interpret market movements, assuming that the price of the underlying security “prices-in” news items. Thus it was natural to learn the ropes and get familiar with the tools I’ll be using for trading.

I found this really nice resource called Chart School, courtesy of StockChart.com. Decided to just jump in and read all of the overview, indicators, and overlays articles, getting a board picture without going too deeply.

In my reading exercises, I found many systems of trading and interpretations of the same technical indicators. Mostly importantly, the article on Multicollinearity which advises on how to build your own trading system using indicators.

ADX, PPO, BB, CMF, STO …

The multicollinearity article discuss about three dimensions in which indicators fall under.

• Momentum
• Trend
• Volume

So one should be careful about using the same information multiple times as support toward a market analysis. For example, when Full Stochastics (STO) and Relative Strength Index (RSI) both suggest that a stock is oversold. Similarly, Percentage Price Oscillator (PPO) and Moving Average Convergence Divergence (MACD) show the same information but normalized differently.

Putting a few indicators together

After some reading I put together a charting setup that helps me analyze securities. Featuring:

• STO, Full Stochastics (14, 3, 3)
• MA, Simple Moving Averages (14, 50)
• BB, Bollinger Bands (20, 2)
• VBP, Volume By Price
• PPO, Percentage Price Oscillator (12, 26, 9)
• ADX, Average Directional Index (14)
• CMF, Chaikin Money Flow (20)
• PVO, Percentage Volume Oscillator (12, 26, 9)

The initial thoughts behind putting using these indicators are:

• Using BB and MAs to get a sense of the security (trend)
• Using VBP to help identify support and resistance zones
• Using PVO to help support price movements (volume)
• Using STO and CMF to assess buying and selling pressures
• Using ADX and PPO to help support reversal signals