Monday, March 12, 2012

Psychology of the Call team (POTC) on Simple Technical Analysis:

 Understanding the trading concept of 'Moving averages' is one of the most important elements of trading that the Psychology of the Call team (POTC) uses. The moving average graphically shows the average price of an investment vehicle: stock, option, or bond over a specific period of time.

There are two types of moving averages:
1.) Simple Moving Average (SMA), and;
2.) Exponential Moving Average (EMA).

The difference between them is that EMA employs mathematical factors that reduce lag time versus the SMA; we view EMA as more 'up to date.' 

POTC uses moving averages to smooth (better see) shorter-term price fluctuation within the longer-term trend. This sometimes helps us peg the direction of the longer-term trend before the average fundamental trading eye notices anything different. 

Moving averages are one of the oldest analytical tools. Though moving averages do not predict coming trend reversals, they do point to changes in a particular trend. And because of the visible smoothing factor, moving averages alert us to 'changes in trend.' Change is a the most important element in human behavior and thus POTC uses moving averages.

Moving Averages are widely used in complex quantitative trading systems. Over the last several decades technicians have built the number of technical indicators based on the moving averages. One such example is the Standard Deviation indicator which helps us define price volatility, MACD helps us identify trend direction and or to smooth other technicals like volume. 

 MACD and MACD Histograms are one of the most popular technical calculations that branch out of the Moving Averages. In technical analysis MACDs are considered momentum indicators and we use them to identify the relation between fast (smaller bars) and slow (bigger bars) moving averages. This is a simple technical indicator that calculates the difference between two exponential moving averages by horizontally swaying/oscillating around a zero/center line. 

PPO (Percentage Price Oscillator) is another technical indicator similar to MACD. Percentage Price Oscillator are calculated as ration between two moving averages (fast and slow). It is analyzed and used in the same way MACD is used with the difference that it oscillates around '1' while MACD around '0'. MACD and PPO can both reveal the direction of the shorter term trend (fast MA) in relation to the longer term trend (slow MA). They are used to generate trading signals from divergence, moving average crossovers and centerline crossovers.

Incorporating these technical arrows into your trading quiver is vital for survival in our opinion. Technical analysis is just one tool that POTC uses when suggesting aggressive option trades to our subscribers. 

Q2 will Kick-Off soon, we are humbled and excited to have you, or Welcome you on board as a new subscriber; please subscribe through Paypal in the right margin. 

Thank You, POTC-

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