“Hell, there are no rules here; we’re trying to accomplish something.” — Thomas Edison

Months ago, I wrote an article about my trading rules that I developed overtime and keep honing with experience. Today, I will talk about important thoughts that compliment my views about trading.

1. Learning how to trade successfully takes dedication, perseverance and hard work. Those seeking shortcuts are doomed to failure. Don’t compare yourself with others and keep your expectations in line. Slow and steady wins the race. Trading is a marathon, not a sprint. Crawl before you walk and walk before you run. Genius is one percent inspiration, ninety-nine percent perspiration.*

2. Everything you learn in trading is part of the larger whole. Everything is a series of facts surrounded by other circumstances. Successful trading occurs when all the circumstances are interpreted together and a holistic understanding develops.*

Little information is a dangerous thing and half knowledge is ignorance.

The learning process is an ongoing combination of separate parts, each part fitting into the next like a puzzle. A coherent whole that progress between the stages is needed to become an expert trader. Keep an eye on the large picture while acquiring parts of the picture.

Start learning as a novice. Learn the basics until you feel assured that you are novice no more yet not a competent trader or even an advanced beginner. Take the next level in the same manner and one day you will be a professional and even an expert.

You will find yourself comfortable trading while no longer think of rules or guidelines. You won’t reason or deliberate. You will spontaneously do what has normally worked and, naturally, it will normally works.* Through experience and hours of practice; trading will be ingrained in you and the awesome power of your intuitive mind will fully take control of the trading process in thoughtless mastery.

3. Don’t blindly follow my rules! Generally, most people prefer to be given a set of rules to follow than to have to use personal insight and innovative thought. People feel more comfortable following rules rather than understanding or challenging them.

Never be a blind follower. The tendency to be a follower is not easy to realize or admit. Understanding the value of these rules and what you will learn here requires your creative thinking getting involved continuously in the process of learning and decision making. Not only verify before you trust but also challenge the rules and look beyond their restrictions, playing with ideas and thinking of original uses.

4. Expect to lose money. If you are new, expect to lose money or break even at best during a first period of time. Losses that the market collects as tuition payments. All of us paid it and none escaped it. Ignore that fact on your own peril.

5. Pick yourself up. If you get hit after a poor decision, which result in a loss of capital, you will be zapped of your confidence, which is far valuable than your lost money.* No approach is fail-safe and any trader worth his or her salt has endured periods of pain.* But know that it ain’t about how hard you get hit, it’s about how you keep moving forward after you get hit.

“Many of life’s failures are people who did not realize how close they were to success when they gave up.” — Thomas Edison

Did you get F for results? You still get A for efforts. Pick yourself up, dust yourself off and start all over again. Dark days happen to the best of us. The more enjoyable your journey will be as you find your way to better tomorrows. Stick to the principles above and you will minimize the number of such moments.

6. Don’t let the needed effort or the potential for failure hold you back from success. The process of becoming an expert trader is not more or less difficult than any endeavor in life. Success is extremely possible and rewards are plentiful. Desire a change, commit yourself to excellence, start making a difference, and you will succeed.

Keep learning and honing a style that works for your personality, time frame, and risk profile. Once you perfect your skill set, you will be able to successfully trade even the worst market conditions. Without your skill set in place, you may end up losing money even if you’re trading some of the best markets.

There are no limits.
There are plateaus and thresholds, but you must not stay there, you must go beyond them.
If it kills you, it kills you. A man must constantly exceed his level.*

7. Start where the last man left off.* Use only that which works, and take it from any place you can find it.* Successful people borrow from others. It is not where you take things from but where you take things to.*

Until next article… I wish you as much as you wish for yourselves and yours.
Be happy, do good, and the rest will be taken care of. — Mr. Lucky

Related:

• The Man who wins
• Expect good things
• Law of creation
• There is no gene for fate
• Any crisis is a blessing in disguise
• Simple Choice
• Defeat, my defeat

This article is a part of series that will inspire you to understand and learn sound technical analysis while trading or investing in the stock market. Find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Trading Rules – The large picture by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Cher

• Listen Free, watch, watch Burlesque version, or spotify
• iTunes: Song – Artist
• Amazon: Song – Artist
• Wiki Article
• More songs by Cher
  

“It doesn’t matter how slowly you go-so long as you do not stop.” —Confucius

Lyrics ~ Songwriters: Diane Warren

Singers: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #
Songs:  A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

This is one song from many that meant to inspire you to find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Haven’t seen the last of me – Cher by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Indicator Type: General Guidance and Market Timer Short-Term (Very Important)

In previous articles we discussed Advances & Declines, A/D ratio, A/D Oscillator, and A/D line indicators. All of them are derived from the raw Advances and Declines numbers. Today, we look at the NYSE McClellan Oscillator ($NYMO). It is another breadth-based indicator that is derived from the same daily net advances (advances minus declines) that is calculated based on the movements of the entire NYSE Exchange rather than any one particular stock. It was named after Sherman and Marion McClellan who invented it in the 1960′s.

The NYSE Daily McClellan Oscillator (MO) Ratio adjusted - Click for chart setting

The McClellan Oscillator (MO) is a short to intermediate-term momentum breadth indicator that tries to anticipate positive and negative changes in the A/D statistics and designed to determine the strength of a trend based on the concept that a strong up-trending or down-trending market is characterized by a large number of stocks advancing or declining moderately in a collective manner, rather than a small number of stocks making large gains or losses.

How the $NYMO is calculated?

19EMA and 39EMA of daily Advance-Decline Issues. Click for live setting

In order to better identify the trend that is taking place in the daily breadth, we smooth the A/D data by using exponential moving averages (EMA) as you see in the chart above. The MO weighs the most recent data more heavily, and older data progressively less. The amount of weight given to the more recent data is known as the smoothing constant.

NYSE McClellan Oscillator (MO) - Courtesy of McClellan financial ~ Click for source

The numerical difference between the 19-day exponential moving average (EMA) of Net Advances less the 39-day EMA of Net Advances is the value of the McClellan Oscillator (MO) that we plot on a separate chart (see above).*

As a difference of two moving averages, this indicator oscillates above/below the zero line. When the 19-day EMA (shorter moving average) moves above the 39-day EMA (longer moving average), the oscillator crosses above its zero line signaling short term breadth momentum is strengthening and turning the corner. It signals that advances are gaining the upper hand. Conversely, when the 19-day EMA declines below the 39-day EMA, the Oscillator crosses below its zero line. It signals that declining issues are dominant and short term breadth momentum is weakening.

For example, from two charts above, today’s NYAD EMA19 is -240.37 and EMA39 is -215.96 and the numerical difference between them is -24.41 which is represented in the chart below as -25.17 (The slight difference is due to different data providers between stockcharts.com NYAD [1st chart] and McClellan financial NYMO [2nd chart]).

Q: Today’s McClellan Oscillator at Stockcharts.com (first chart in this article) stands @ -8.20 not -24.41 or -25.17 as you mentioned above. Why?

Stockcharts.com uses the same principle as the original NYMO to determine the value of its NYMO but it is ratio adjusted to take into account changing totals in issues traded on the NYSE. Instead of using Net Advances, the ratio-adjusted calculates Net Advances as a percentage of advances plus declines. The difference of these values is divided by their sum and multiplied by 1000; thus, the market breadth is normalized to the -1000/+1000 scale obtaining whole numbers and eliminating decimals — Read more.

Q: What is an oscillator?

An oscillator is an indicator that fluctuates above and below a centerline or between set levels as its value changes over time. Oscillators can remain at extreme levels (overbought or oversold) for extended periods, but they cannot trend for a sustained period. More!

Q: What is exponential moving average EMA?

It’s a data series that is simply formed by computing the average (mean) price of a security over a specified number of periods usually using the closing price. For example: a 5-day simple moving average (SMA) is calculated by adding the closing prices for the last 5 days and dividing the total by 5. Ex. 10 + 9 + 11 + 15 + 15 = 60 / 5 = 12

The calculation is repeated for each new daily price on the chart. The averages are then joined to form a smooth curving line that we call the moving average line, which makes spotting trends easier than the raw data. Continuing the example above, if the next sixth day closing price in the average is 15, then this new period would be added and the oldest day, which is 10, would be dropped. The new 5-day SMA then would be 13 instead of 12.

In order to reduce the lag in SMA, technicians apply more weight to recent prices relative to older prices according to a calculated formula producing what is known as the exponential moving averages EMA. The calculation is automatically performed for you and presented as an easy to understand chart. No math is required but here is the math behind it, Click here!

Until next article and as usual.. Be happy, do good, and the rest will be taken care of. —Mr. Lucky

More about calculation – Reference 1.2.3

This article is a part of series that will inspire you to understand and learn sound technical analysis while trading or investing in the stock market. Find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading NYSE McClellan Oscillator (NYMO) – Calculation by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Beside an ergonomic desk, chair, footrest, and adjustable monitor arms, my latest workstation offers affordable and genius solutions to DIY discreet cable management system and recharging station. You will also find tips and links below to healthy information and solutions about ergonomics, proper and safe computing habits, decluttering, organizing, lighting, improving air quality, and more.

Imagine what your workstation will look like, plan it right, and make it happen. It will make all the difference. If you’ve got any questions, comments, or better ideas, please post them in the comment section. If you decide to do this, send your pictures and I’ll post them here and link back to your site if you have one.

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Healthy Information:

• Work space planner and Ergonomics’ calculator.
• Comfortable computing, healthy computing, and safe computing.
• Creating an ergonomic workstation (Video 1, Video 2, Video 3, Video 4).
• Ergonomics’ tips, guide, and one more to solidify the idea.
• How to design a home office and organize your workstation?
• Organize your life, organize a home office, and design a home office video series.
• Declutter.. feel the fear and do it! Here are some strategies to help.
• The cable management system is inspired by Van & Michael. Thank you both.
• Top 10 Ways to Get Cables Under Control
• Benefits of dual source lighting.

Tips for the cable management system:

• If your pegboard is visible, pick a color that matches your wall or spray paint it before assembly.
• Get a sturdy pegboard. I bought two from Amazon. Lowe’s has a good one for less though little thinner. Home Depot has a white one.
• Pick a lot of 8 inches cable ties, some 4, and few 11,12, or 14 inches for large items. Daisy chain to create longer lengths. If color is no issue, this choice is a good one.
• If your pegboard is visible, pick ties that are neutral or similar color to your pegboard.
• Thin and narrow cable ties are better in gripping on items than thick and wide ones.
• Use hanger bolts and Wingnuts of the same size to hang the board to the back of your desk. image
• Use screw Eye Hook and eye shackle to hang the board when your desk doesn’t have a back. image
• Use pivot-plug surge protector and power strip liberator for better handling of bulky cables, and power adapters. image
• Use USB Hub to power, recharge and connect your devices to your computer. All-in-one solution. image.
• Use cable and cord organizers (here and here) to tuck your cords away when not in use while keeping them from falling off the back of your desk. image.
• You can attach your speakers to the front of your pegboard using simple screws as hooks or use strong Velcro. Image and here.
• Before installing items to your pegboard, arrange your furniture and equipments correctly to make sure that wires go exactly where they suppose to go. image
• Give yourself a room away from the wall to assemble comfortably in an open space.
•  Put something soft under your knees while assembling the pegboard or raise your entire assembly surface.

 Workstation components are:

1. The Envelope Desk  and Embody chair. I bought both from here and here.
2. iMac 27 inches with wireless keyboard and trackpad bought directly from Apple. Image.
3. The cable management system:  See above
4. Innovative 7500HD-1500-124 monitor arm to carry my 30 pounds iMac. See image and watch video. I bought it from here. Another option is the M8 HumanScale.
5. Ergotron LX dual stacking Arm. See image and watch video. I bought it from here. Special thanks go to MacRumors board’s informative thread about monitor arms.
6. Wireless network router: Tutorial, setup, troubleshooting, and security.
7. V-Tech LS6475-3 DECT 6.0 2 Handsets with DECT 6.0 Headset and Plantronics Voyager PRO+. image.
8. HP officejet 4500 Wireless All-in-one printer.
9. Task light 24-LED Clip Lamp. image.
10. HumanScale Foot rest. See image.
11. Shredder & Waste basket.
12. Allen air filter. image.
13. Ceiling fan. image.
14. Air conditioner

-- Thanks for reading My decluttered, ergonomic, and healthy Workstation by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Indicator Type: General Guidance Short and Medium-Term (Important)

Another way to use the AD Line we studied in a previous article is to look for divergence between the DJIA (or a similar index like S&P 100) and the NYSE A/D Line. Looking at this parameter reduces the impact of the large cap stocks, which influence market indexes the most, and instead examine price trends of a diverse range of stocks through a large market like the NYSE. It measures market sentiment and tell us the fraction of the overall market that is participating in the market’s up or down move.

Watch out for a top when the A/D line fail to lead or follow the DJ Industrials

Often, an end to a bull market can be forecast when the A/D Line begins to roll over while the DJIA is still trying to make new highs. If history is an indicator, when a divergence develops between the DJIA and the A/D Line, the DJIA has corrected and gone the direction of the A/D Line. You can spot this also when the DJIA ends a year outperforming most of the major indexes like S&P, NASDAQ, and the Russell.

A military analogy is often used when discussing the relationship between the A/D Line and the DJIA. The analogy is that trouble looms when the horsemen or generals lead (DJIA is making new highs) and the infantry refuse to follow (A/D Line fails to make new highs).

As of May15 2011, the horsemen and infantry are charging together. Click for this chart's live setting

Until next article and as usual.. Be happy, do good, and the rest will be taken care of. —Mr. Lucky

This article is a part of series that will inspire you to understand and learn sound technical analysis while trading or investing in the stock market. Find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Advances & Declines Line – Horsemen & Infantry by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Joe Cocker

• Listen Free or watch
• iTunes: Song – Artist
• Amazon: Song – Artist
• Wiki Article
• Same song By: Nina Simone – The Animals
• More songs by Joe Cocker

“I’m just a soul whose intentions are good
Oh Lord, please don’t let me be misunderstood”

Lyrics ~ Songwriters: Sol Marcus; Gloria Caldwell; Bennie Benjamin 

Singers: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #
Songs:  A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

This is one song from many that meant to inspire you to find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Don’t Let Me Be Misunderstood – Joe Cocker by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Nina Simone

• Listen Free or watch
• iTunes: Song – Artist
• Amazon: Song – Artist
• Wiki Article
• Same song By: The Animals – Joe Cocker
• More songs by Nina Simone

“I’m just a soul whose intentions are good
Oh Lord, please don’t let me be misunderstood”

Lyrics ~ Songwriters: Sol Marcus; Gloria Caldwell; Bennie Benjamin

Singers: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #
Songs:  A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

This is one song from many that meant to inspire you to find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Don’t Let Me Be Misunderstood – Nina Simone by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

The Animals

• Listen Free or watch
• iTunes: Song – Artist
• Amazon: Song – Artist
• Wiki Article
• Same song By: Nina Simone – Joe Cocker
• More songs by The Animals

“I’m just a soul whose intentions are good
Oh Lord, please don’t let me be misunderstood”

Lyrics ~ Songwriters: Sol Marcus; Gloria Caldwell; Bennie Benjamin 

Singers: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #
Songs:  A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

This is one song from many that meant to inspire you to find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Don’t Let Me Be Misunderstood – The Animals by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Tina Turner

• Listen Free or watch or watch Live
• iTunes: Song – Artist
• Amazon: Song – Artist
• Wiki Article
• More songs by Tina Turner
  

“You’re simply the best, better than all the rest
Better than anyone, anyone I’ve ever met”

Lyrics ~ Songwriters: Mike Chapman and Holly Knight 

Singers: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #
Songs:  A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

This is one song from many that meant to inspire you to find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading The Best – Tina Turner by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Celine Dion

• Listen Free or watch
• iTunes: Song – Artist
• Amazon: Song – Artist
• Wiki Article
• More songs by Celine Dion
  

“You gave me wings and made me fly
You touched my hand I could touch the sky
I lost my faith, you gave it back to me
You said no star was out of reach
I’m everything I am because you loved me”

Lyrics ~ Songwriters: Diane Warren 

Singers: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #
Songs:  A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

This is one song from many that meant to inspire you to find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Because you loved me – Celine Dion by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Indicator Type: General Guidance Long-Term (Very Important)

In the previous article we discussed the A/D line and learned how to use it as confirmation tool and divergence-warning tool. Today, we will learn to add Exponential moving averages to smooth the A/D line and get an added signal to confirm the long-term trend or any change in that trend.

NYSE A/D line with EMA 21, 34, and 65 - Click to Enlarge

• Chart Live Settings

• I use EMA 21, 34, and 65 to smooth the A/D line (see this article to know how to do this).
• In bear markets the A/D Line EMA65 (green) stays on the top of the other two and in bull markets EMA 65 stays below the other two EMAs as you can see in the chart above.
• A bearish or bullish cross of the EMA21, 34 without breaking the EMA65 gives you a first warning of an incoming trend change.
• Confirmation of market trend change only occurs when EMA65 also gets a clear cross by both EMA21 & 34.
• When the A/D line itself crosses under or above its EMA21, 34, or both, this usually signals a correction is undergoing. It ends when the A/D line cross back above or below the EMA34 and then 21 (depend on which market trend we are).

Q: Should I conclude that once the EMA65 gets violated, the previous trend won’t come back for awhile?
A: NO! False signals occur but they are not frequent and reverse quickly in normal markets. As always, use multiple indicators to confirm your analysis. This is not a market timing indicator. It is only an added confirmation to your analysis.

Until next article and as usual.. Be happy, do good, and the rest will be taken care of. —Mr. Lucky

This article is a part of series that will inspire you to understand and learn sound technical analysis while trading or investing in the stock market. Find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Advances & Declines Line EMA — (Issues) by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Indicator Type: General Guidance Short and Long-Term (Important)

In the previous article I introduced you to the A/D line and urged you to think of it as confirmation tool and divergence-warning tool explaining to you how to do that. In this article I’ll give you an example to illustrate how divergence works.

Bullish and bearish divergence gave us an excellent warning of market tops and bottoms - Click to Enlarge

A historical look at the NYSE A/D line tell us that since 2002, it has been powering higher rising always to new high. The rise reflected the stock market’s strong performance and the fact that many issues that trade on the NYSE have been moving higher rather than lower. There have been a few instances when market breadth was poor and the A/D line dropped. However, during the 2002-2007 bull market, those few instances proved to be short-lived.

During June-July 2007 (well ahead of market top), something different happened. The AD line peaked and started falling since then. Check out the chart above to see what happened during that period. You can see $NYA (NYSE Composite Index) made a higher high on both July and October 2007, an acknowledged bullish sign. However, the A/D Line didn’t confirm the index ascent by failing to make a newer high in both instances. That should warranted investors to the fact that the market as a whole was not behind the move higher and should be wary of the advance. No wonder, that was the top of the market and a decline followed that started the worst stock market decline in recent history.

Again, since October 2007 the A/D Line confirmed the down trend in price of the $NYA. The $NYA made lower highs and lower lows and likewise, the A/D line made lower highs and lower lows.

To give you an example of a bullish divergence, look at the move in July 2009 (4) and after the 2010 flash crash (5). $NYA made a lower low in both instances, an acknowledged bearish sign. However, the A/D Line did not confirm the index descent by not making a newer low. That should send a signal that market breadth and strength is stronger than the prices would tell us. And always whenever you spot a divergence between price and breadth, trust breadth.

Q. Does every non-confirmation brings market reverse?
A. A-D Line can’t measure the amplitude of the advances and declines — only the absolute number. Because the A-D Line cannot express the amount of price movement, it is unreasonable to expect it to always confirm new price highs, which is how it is usually, and incorrectly, interpreted… More

Until next article and as usual.. Be happy, do good, and the rest will be taken care of. —Mr. Lucky

This article is a part of series that will inspire you to understand and learn sound technical analysis while trading or investing in the stock market. Find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Advances & Declines Line Divergence — (Issues) by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Indicator Type: General Guidance Short and Long-Term (Very Important)

In a previous article we learned about the very important A/D Oscillator indicator ($NYAD), which represents net advances (advances minus declines). It is plotted on a chart as a value that oscillates above and below a zero center line. Today, we will use that same indicator to produce the Advance & Decline line known as (A/D) line.

Q: How the index is calculated?
A: Computing the A/D line is straightforward. Each day, we take the number of net advances $NYAD (even if it is negative). The calculated number is then added to the previous day’s A/D Line.

NYSE Advancing Issues – NYSE Declining Issues = Positive or negative number
+ previous A/D line value = Today’s A/D line value

NYSE Daily Advance Decline (A/D) line "Cumulative" Click for Live chart. Note: Changing the above time frame will change the value mentioned above. The numeric value is of little importance. What is important is the slope and pattern of the A/D Line.

Let me give you an example: On Friday May 6th, 2011 advancing issues ($NYADV) were 1985 stocks that closed the day with an increase in their share price. The declining issues ($NYDEC) were 1008 stocks that closed the day with a decrease in their share price. 1985 – 1008= +977 ($NYAD). For the day, 977 more stocks closed the day higher than closed the day lower.

On the day before, Thursday’s cumulative A/D Line totaled 37982. Today’s reading of +977 would be added to yesterday’s total. This would result in an updated total of 38959 reflecting the latest value of the cumulative A/D line in this one year chart above.

NOTE: You don’t have to do the calculation every day. Just use the $NYAD chart and select cumulative in chart type for your selected time-frame.

Q: What is the difference between $NYAD and $NYAD line?
A: $NYAD line is the cumulative value of $NYAD for any period of time you choose.

Analyzing and using the A/D line:

In general A/D line can be used to gauge:
1. Overall market strength.
2. Rising or falling trends.
3. The length and ability of the trend to continue, and
4. The risk of trend change

Q: I noticed that A/D line can be positive or negative. Does it make a difference?
A: The total daily difference between advancers and decliners as well as the value of the A/D line can be positive or negative, which is irrelevant. What is relevant is the direction or the trend of the AD Line and/or any divergence between prices and the AD line. When thinking about the “AD line” I want you to think of it as a confirmation tool and divergence-warning tool. It is an important indicator to confirm the price of market movements as a whole and detect divergences.

1. Confirmation tool:

$NYAD is confirming the bullish move in the $NYA Index - Click to Enlarge

The A/D line looks at the ratio of advancers and decliners over time. We use it as a measure of market breadth in order to determine the strength of market movements to tell us whether bullish or bearish momentum is pushing the stock market.

On days when more stocks advance than decline, the A/D line will move higher signaling that a bullish momentum in the market is increasing. An increasing A/D Line is bullish because more stocks at the NYSE are closing the day with gains. Rising values of the A/D line can be used to confirm the likelihood of the upward trend continuing.

Also, when the A/D line falls, more stocks fell than move higher. A declining A/D line is a sign of internal market weakness, signaling a bearish momentum in the market is strengthening. A decreasing A/D Line is bearish because more stocks are closing the day with losses. Falling values of the A/D line can be used to confirm the likelihood of the downward trend continuing.

2. Divergence-warning tool:

Because the A/D Line reflects the action of the general market, technicians watch any divergences closely. Comparing the behavior of the A/D line to market will portray a much weaker or stronger market than can be gleaned by just looking at the price.

Whenever a divergence between price and any market breadth indicator happens, favor breadth especially when the divergence is bearish in a bearish market or bullish in a bullish market.

• As I showed you in the A/D oscillator divergence article, A/D line movement in the same direction as the market confirms the market movement. As long as the NYSE Index ($NYA) and its A/D line are moving in the same direction the trend will continue but if the $NYA makes a new high, which is not confirmed with a new high of the A/D line, you should be cautious with your bullish views.
• This (bearish) negative divergence is a sign that the new high was driven by smaller number of stocks than before. It usually tell us that the market is losing its breadth.
• It signals an incoming negative potential of either: Imminent correction, weak and not lasting future price advance, sideways action, or even getting ready to change the prevailing trend.
• Conversely, if the NYSE Index makes a new low and the A/D line doesn’t, then caution is warranted with your bearish views.
• Check this article for an example.

Warning: Read the warning note in the A/D oscillator divergence article. Same applies for the A/D line.

Examining peak and trough A/D line trendline:

In this 4 years time-frame, you can see the value of examining the A/D trendline - Click to Enlarge

The most effective way to do this is to draw trendlines on both the underlying (NYSE) chart and the A/D line chart [red for downtrend and blue for uptrend]. A break in the A/D line trendline will provide a confirmation of the message given off by the underlying price chart.

Q: Why using $NYSE A/D line is important than other indexes like the NASDAQ?
A: Many market participants believe the NYSE A/D line is more revealing than popular indexes such as the Dow Jones, S&P 500, or the NASDAQ Composite. This is because the A/D line is usually calculated on the NYSE, which represents the largest equities marketplace in the world. Historically, not only the AD Line peaks out or bottom well ahead of these more widely followed market indexes and averages but also it turns down or up before its own market index turn down or up.

• I used NYSE numbers for this article but A-D Line can be calculated for any market index where daily advancing and declining issues are reported

Until next article and as usual.. Be happy, do good, and the rest will be taken care of. —Mr. Lucky

This article is a part of series that will inspire you to understand and learn sound technical analysis while trading or investing in the stock market. Find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Advances & Declines (A/D) Line – Issues by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Indicator Type: General Guidance (Short and Long-Term)

In the previous article we studied the Advances & Declines oscillator. It helped us spot where the market was oversold and near or at BOTTOM levels or when the market was overbought and near or at TOP levels. Today, we will analyze another signal this indicator can provide us based on any divergence between the Index price (NYA) and its A/D oscillator indicator ($NYAD).

Because the A/D oscillator reflects the action of the general market, technicians watch any divergences closely. Comparing the behavior of the A/D ratio to market’s rise or decline will portray a much weaker or stronger market than can be gleaned by just looking at the price level where a market stands.

Warning: “Divergence only warns of a strengthening or weakening market condition but does not represent an immediate signal to buy or sell.”

NYSE A/D Oscillator ($NYAD) - Watch for divergence between NYA and NYAD. It can signal incoming market trend reversal or correction - Click to enlarge.

• Chart Live Settings

Whenever a divergence between price and any market breadth indicator happens, favor breadth especially when the divergence is bearish in a bearish market or bullish in a bullish market.

• A/D oscillator movement in the same direction as the market confirms the market movement. As long as the NYSE Index ($NYA) and its A/D oscillator ($NYAD) are moving in the same direction the trend will continue but if the $NYA makes a new high, which is not confirmed with a new high of the $NYAD, you should be cautious with your bullish views.
• This (bearish) negative divergence is a sign that the new high was driven by smaller number of stocks than before. It usually tell us that the market is losing its breadth.
• It signals an incoming negative potential of either: Imminent correction, weak and not lasting future price advance, sideways action, or even getting ready to change the prevailing trend.
• Conversely, if the NYSE Index makes a new low and the A/D oscillator doesn’t, then caution is warranted with your bearish views.

• Warnings:

1. When the market overall trend is bullish (see chart above), the bearish divergence signals will not be as valuable as the bullish ones. We are in a bull market and the bullish divergence signals generated healthy up trends unlike the bearish divergence signals which generated little, or short-lived down corrections. Conversely in bear markets, you should depend more on the bearish divergence rather than the bullish ones.
2. Divergence can and usually last for more than a day or a week. It can even last for very long periods of time. A/D oscillator divergence is not a timing tool but it often indicates that the market’s direction is “suspect” and that the current primary market trend is losing steam. 

Always, use multiple indicators to confirm your analysis. Markets that appear to be extremely overbought or oversold may stay that way for more than anyone can expect. The market can stay irrational more than you can stay solvent.

Until next article and as usual.. Be happy, do good, and the rest will be taken care of. —Mr. Lucky

This article is a part of series that will inspire you to understand and learn sound technical analysis while trading or investing in the stock market. Find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Advances & Declines Oscillator Divergence – (Issues) by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Joe Cocker

• Listen Free or watch and watch Live
• iTunes: Song – Artist
• Amazon: Song – Artist
• Wiki Article
• Same song by: Van Morrison
• More songs by Joe Cocker
  

“I want to rock your gypsy soul
Just like way back in the days of old
And magnificently we will flow into the mystic”

Lyrics ~ Songwriters: Van Morrison 

Singers: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #
Songs:  A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

This is one song from many that meant to inspire you to find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Into The Mystic – Joe Cocker by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Van Morrison

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• iTunes: Song – Artist
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• Wiki Article
• Same song by: Joe Cocker
• More songs by Van Morrison

“When that fog horn blows you know I will be coming home
And when that fog horn whistle blows I got to hear it
I don’t have to fear it”

Lyrics ~ Songwriters: Van Morrison

Singers: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #
Songs:  A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

This is one song from many that meant to inspire you to find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Into The Mystic – Van Morrison by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Willie Nelson

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• iTunes: Song – Artist
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• More songs by Willie Nelson

“I’ve been dreaming like a child
Since the cradle broke the bow
And there’s nothing I can do about it now.”

Lyrics ~ Songwriters: Beth Nielsen Chapman

Singers: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #
Songs:  A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

This is one song from many that meant to inspire you to find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Nothing I Can Do About It Now – Willie Nelson by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Whitney Houston

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• Wiki Article
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“Who knows what miracles you can achieve
When you believe somehow you will”

Lyrics ~ Songwriters: Stephen Schwartz

Singers: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #
Songs:  A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

This is one song from many that meant to inspire you to find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading When you believe – Whitney Houston & Mariah Carey by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Peter Gabriel

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• More songs by Peter Gabriel

“There is not enough blood in a man’s body to go north for his brain to function normally when all of it go south.” — Joy

Lyrics ~ Songwriters: Peter Gabriel

Singers: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #
Songs:  A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

This is one song from many that meant to inspire you to find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Sledgehammer – Peter Gabriel by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |

Indicator Type: Market Timer (Very Important)

Last week I introduced you to the advances and declines issues data, and how to chart and smooth them. Then I showed you how to use this raw data as indicator. Finally, I explained to you how to get the advances and declines ratio, smooth it, and use it as an excellent indicator to spot oversold bottoms and overbought tops. That was pure joy.

Today, we will be discussing what I call the A/D Oscillator indicator ($NYAD). It is also known as A/D OB/OS indicator or Advance and Decline Overbought/Oversold indicator. It is derived from subtracting the number of stocks that are currently trading higher (advancing) from the number of stocks that are presently trading lower (declining). The result is called Net Advances, a value that oscillates (swings, revolves or fluctuates) above and below a zero center line.

$NYAD — NYSE daily Advances MINUS Declines issues. Click for Live chart

Above chart is the raw numbers of $NYAD. Analyzing the resulting numbers give us a better picture of the true strength or weakness of daily movements. Internally strong up days (green circles) show reading of more than +1000. Internally strong down days (black circles) have readings of more than -1000.

• This raw data of  daily $NYAD is the foundation for the calculation of numerous market momentum indicators. First one is below. Stay tuned for more.

Advances & Declines Oscillator — A/D Oscillator:

$NYAD Oscillator Indicator — EMA10 NYSE daily Advances MINUS Declines issues. Click for Live chart

To generate the A/D Oscillator indicator (shown above), we use the EMA10 (10days exponential moving average) to smooth the data as we did with A/D ratio indicator. Once we smoothed the numbers using EMA10 , it became easier to spot where the market was oversold and near or at BOTTOM levels (at or below -500), which is a bullish signal for the market. Also we could spot when the market was overbought and near or at TOP levels (at or above +500), which is a bearish signal for the market.

Warnings:

(1) When the overall trend is bullish as the chart above, the bearish signals will not be as valuable as the bullish ones. We are in a bull market and the oversold bullish signals generated healthy up trends unlike the overbought bearish signals which generated sideways, little, or short-lived down correction. Conversely in bear markets, you should depend more on the bearish signals rather than the bullish ones.

“Oversold levels can be relied upon only when a bear trend is maturing, or during bull phases.”

(2) In a bear market, the oversold levels bottoms at a lower levels than in a bull market (as in the chart above) due to the bearish sentiment that prevail in bear markets. Opposite is for the overbought levels in a bear market. It will top at a lower levels than in a bull market for the same reason.

(3) During market crashes, extreme bear market rally after oversold market, or the first wave of a bull market; these indicators tend the break all normal tops or bottoms and stay destabilized for period of time after the initial move, then go back to give the normal signals when the market return to the prevailing trend or establishes a new one.

• Note: I used histogram chart type in the raw data but switched to line type to plot the indicator.
• I displayed NYSE numbers in this article but numbers from different stock exchanges can be plotted also. Here is a list of all issues’ charts.

Until next article and as usual.. Be happy, do good, and the rest will be taken care of. —Mr. Lucky

This article is a part of series that will inspire you to understand and learn sound technical analysis while trading or investing in the stock market. Find your voice and start or join a productive and related discussion. Make a comment below and rate or share with others.

-- Thanks for reading Advances & Declines Oscillator – (Issues) by Joy Mystic from Will To Know Connect: Twitter | Flickr | YouTube |