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sideways or continue uptrend. However, appearance of a Doji is a signal of caution that the
probability is high
that the erstwhile trend may be coming to an end. Doji is a candle which has open and
close almost at similar
level. There can be upper shadows and lower shadows of various proportions.
Figure 5.9: Doji
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Chapter 6: Indicators
Indicators are tools to aid decision making in the market. There are various types
of indicators which
measures or indicate the trend,
the momentum, the volatility and various other aspects in the market. There
are thousands of indicators which are derived out of the price and volume data over time.
Here we introduce
you with four very useful indicators.
6.1: Simple Moving Average:
Simple Moving Average or SMA is a moving average which is calculated by adding the closing price of security
prices for the last n-periods and dividing it by the total number of time periods.
For example, suppose we want to calculate the 9 periods SMA of a security price.
First, we will add the last 9 Days Closing Price of the security and then it will be divided by the 9 periods.
Calculation for 9 periods SMA:
(P9+P8+P7+P6…. +P1)/9
Where,
P=Price
P9= Closing Price 9 days ago
SMA is a Technical indicator which is represented by a line and it is directly plotted on the security price. As
per the choice of the trader, the periods can be changed in the SMA indicator.
For shorter-term SMA, we can use 5,8,13 etc. For Medium term 20, 34, 50 and for longer term 100,200 can
be used.
