I hear that IG TV presenter Victoria Scholar found this week’s segment with Rajan Dhall especially helpful – and having just watched it, I can see why. He focuses on 3 popular technical analysis indicators, walking us through, step by step, how to construct and interpret them; very much a ‘teach yourself’ indicators special.
His first chart is daily candlesticks on the US dollar index, explaining that price action and any indicator can converge in their direction, but that we tend to focus on signals diverging. This is very much the case here, where the index dips a little lower than the most recent significant low point, but is not the case with the RSI. Below this he plots the MACD, with the Stochastics at the bottom. He, like I, display them always in the same sequence, making for speedy reading and confusion less likely.
The way he uses the indicators veers away from classic orthodoxy at times, something worth picking up when you can. On the RSI he stresses the importance of the 50 level, focusing on whether the reading is above or below it. Likewise he actions a trade when, after moving outside the extreme levels of 30 and 70, the reading switches back inside them.
With the MACD his focus, as per convention, is on the zero line. But his histogram uses some interesting shades of red and blue; I must quiz him about this when we meet up at the next STA Monthly Meeting.
I like the way he warns us that Stochastics often do not work for long periods if the market’s trending strongly, and therefore this indicator is not really reliable on its own; it should only be used in conjunction with other ones.
Always the case: the more technical analysis features pointing in the same direction, the stronger the signal.