Investment Club2007-2008

09.12.07

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Resistance/support

• Resistance:– Arbitrary line that a stock will attempt to, but cannot exceed for a period of time.

• Support:– Arbitrary line that a stock will have difficulties falling below.

1. Moving Average

• Shows the average value of a security's price over a set period.• Generally shows momentum of the stock for that period.

• Two types: SMA and EMA– SMA: simple moving average:

• ∑closing price of past n number of days / n

– EMA: exponential moving average• Heavier weight on recent price movement

– Reacts faster to recent price movements

MACD

•Black line = diff. between 24 & 12 day EMA

•Red line = 9day EMA of the MACD

•Momentum indicator that shows the amount of divergence between the moving averages.

•When black line is above 0, ST Avg is less than LT Avg. Vice versa.

Relative Strength Index (RSI)

•RSI is a momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset.

RSI = 100 - [ 100 / (1 + RS) ]RS = Average of U for n days / Average of D for n days

U = closetoday - closeyesterday [[on a Upday]]D = closeyesterday - closetoday [[on a Downday]]

•A stock is considered to be overbought and underbought when the RSI is above 70 and 30, respectively.

Bollinger Band

• A band plotted two standard deviations away from the MA

• Because Std. Deviation is a measure of volatility, the Bollinger band will automatically adjust itself to the volatility of the stock.

– More volatile, wider the band.

Candlestick

• Chart style, developed in Japan, that displays the high, low, open, and close for a security each day over a specified period of time.

– Upside: you can see 5 information at once (four from above and up/down day)