The Road to Successful Trading

bearish signal, which indicates that it may be time to sell. Conversely, when the MACD rises 
above the signal line, the indicator gives a bullish signal, which suggests that the price of 
the asset is likely to experience upward momentum. Many traders wait for a confirmed cross 
above the signal line before entering into a position to avoid getting getting “faked out” or 
entering into a position too early, as shown by the first arrow.
2. Divergence - When the security price diverges from the MACD. It signals the end of the 
current trend. 
3. Dramatic rise- When the MACD rises dramatically - that is, the shorter moving average pulls 
away from the longer-term moving average - it is a signal that the security is overbought and 
will soon return to normal levels. 

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On Balance Volume 
 
Developed by the once favored stock market guru, Joseph Granville, On Balance Volume is a very
useful tool to help gauge sentiment about a particular stock or option by presenting a picture of
what is happening between price movement and demand. If volume supports price increase, it 
shows a demand driven movement. However, if the price is moving up but volume is declining,
this shows a divergence and may indicate a reversal. 
On the flip side, if price is declining and volume is also decreasing, this may also signal a reversal
to the upside. In few words, a trend needs to be fueled by volume. When the fuel runs low, the
ability to sustain the trend is diminished. Use of the On Balance Volume is an excellent
confirmation tool to use with other indicators. 
Bollinger Bands 
Bollinger Bands are the brain child of John 
Bollinger, a noted technical analyst. 
Bollinger Bands consist of a centerline and 
two price channels, one above the 
centerline and one below. The centerline is 
an 
exponential moving average
, and the 
price channels are standard deviations of 
the stock the chartist is studying
3
. The 
bands will expand and contract as the price 
action of an issue becomes volatile 
(expansion) or becomes bound into a tight 
trading pattern (contraction). Thus, at a 
glance, the Bollinger Bands can 
demonstrate the amount of volatility of the
price movement. When the bands contract around the moving average, trading is less volatile. 
When the bands expand, volatility is increasing. One could say that when the Bollinger Bands start 
to bulge, that means some sort of pressure is building up and some movement may push through the 
band indicating a significant movement. As long as prices do not move out of Bollinger Band 
channel, the trader can be reasonably confident that prices are moving as expected. But when
How to Design and Construct An Effective Trading Plan 
36
Sell/Buy 

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