Technical Analysis

What is Technical Analysis?

It is the use of charts and indicators to show trends in the market with the main concern being in price movement.

Charts are graphical displays of price and volume data.

Technical indicators include a variety of measures of relative price level and volume of security for example price momentum, market sentiment, and funds flow.


Indicators will measure how a change in supply and demand may affect a security’s price.

  1. Price Based Indicators

a)  Moving Averages

This is the average of the closing price of a security over a specified number of periods. Simple moving average will weigh each price equally in the calculation of the average price.Exponential moving average gives the greatest weight to recent prices while giving exponentially less weight to older prices.

A security trending down in price will trade below its moving average, and a security that has been trading up will trade above its moving average.Once a security starts approaching the moving –average line, this is called a resistance level, many investors will be concerned and start selling the security.

When a short-term moving average crosses from underneath a longer- term average, this movement is bullish and is a golden cross.When a short-term moving average crosses above a longer –term moving average, this movement is bearish and is called a dead cross.

b) Bollinger Bands.

This consists of a moving average plus a higher line representing the moving average plus a set number of standard deviations from average price and a lower line that is a moving average minus the same number of standard deviations. The more volatile the security being analysed becomes, the wider the range becomes between the two outer lines or bands.

2. Relative Strength Index

It compares a security’s gains with its losses over the set period. It provides information on whether an asset is overbought or oversold. A value above 70 represents an overbought situation and a value below 30 suggests an asset is oversold.

3. Relative Vigor Index

Used to determine price trend direction. In a bull market, the closing price is higher than the opening price and in a bear market, closing price is lower than opening price. It is calculated as RVI-= (Close-Open)/ (High-Low)

4. Relative Volatility Index.

It measures direction of volatility on a scale. Volatility is found by calculating the annualized Standard deviation of daily change in price. If the price of a stock moves up and down rapidly over short time periods, it has high volatility. If the price almost never changes, it has low volatility.
Readings greater than 50 indicates the volatility is more to the upside, buy. Reading lower than 50, indicate the direction of volatility is to the downside, and sell. Close a long position when RVI is below 40 and close a short position when RVI rises above 60.

5. SMI Ergodic Indicator/ Oscillator.

This is similar to the True Strength Indicator. It is composed of two moving averages. It is used to determine if the value of an asset is overbought or oversold. This shows the location of close relative to the high-low range over a set number of periods.

6. Stochastic RSI

Ranges from 0 to 1. Using RSI within the stochastic formula gives the traders an idea of whether current RSI is overbought or oversold. If value is below 0.20, stock means it is oversold and if it is above 0.80 suggests RSI is reaching extreme levels and could be used to signal a pullback in the underlying security.


This displays the percentage rate of change of a triple exponentially smoothed moving average. It oscillates around a zero line. When it is used as an oscillator, a positive value indicates an overbought security while a negative oscillator indicates an oversold security. Many analysts believe that if the TRIX crosses above the zero line, it gives a buy signal and when it crosses below the zero line, it gives a sell signal.

8. Triple EMA

It smooths price fluctuations and filters out volatility, thereby making it easier to identify trends with little lag.

9. Volume

This is the number of shares that are traded over a given period time. The higher the volume, the more active the security. They appear at the bottom of the chart. It is used as a confirmation of the chart trends.

10. Volume Oscillator.

This measures volume by measuring the relationship between two moving averages.

Fast Volume Moving Average is usually over a period of 14days or weeks. The slow Moving Average is usually 28 days or weeks. If a market is declining or moving in a horizontal direction, the volume should contract. Note that an increasing price, together with declining volume, is always, without exception, bearish. Also, rising volume with declining prices is also bearish.

11. Williams %R

This measures overbought and oversold levels, similar to stochastic oscillators. Calculation = (Highest High- Close)/(Highest High –Lowest Low). Readings from 0-20 are considered overbought. Readings from 80-100 are considered oversold.

12. Williams Alligator

It consists of three lines and can help traders designate impulse and corrective wave formations, but the tool works best when combined with a momentum indicator.

13. ZigZag

Used for wave analysis to determine stock position in the overall cycle. Used to predict when a given security’s momentum is reversing. Used by traders to eliminate random price fluctuations and attempt to profit when the trend changes. It is based on historical prices and just used as a confirmation.

14. Parabolic SAR

Used by traders to predict an asset’s future direction.

15. On Balance Volume

This reflects movement in volume. It is calculated by taking the total volume for trading period and assigning a +/- number depending on whether price is up/down.When price is up, the volume is assigned a positive value, while a negative value is assigned when price is down for the period.

16. Money Flow

This uses the stock’s price and volume to predict the reliability of the current trend. It is positive when prices rises which indicates buying pressure and is negative when prices fall indicating selling pressure.

17. Mass Index

Examines the range between low and high stock prices over a period of time.

18. MACD

The Moving Average Convergence Divergence (MACD) is a trend following momentum indicator that shows the relationship between two moving averages of prices.

There are three common methods used to interpret the MACD:

a) Crossovers - When the MACD falls below the signal line, it is a 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 "faked out" or entering into a position too early.

b) Divergence - When the security price diverges from the MACD. It signals the end of the current trend.

c) 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.

19. MA Cross

A crossover occurs when a shorter period Moving Average crosses either above a longer period Moving Average which is considered a bullish crossover or below which is considered a bearish crossover.

20.Linear Regression Curve

The Linear Regression Curve plots a line that best fits the prices specified over a user-defined time period. Used mainly to identify trend direction and is sometimes used to generate buy and sell signals.

21. Least Squares Moving Average

This calculates a least square regression line over the preceding time periods, and then projects it forward to the current period. It calculates the value if the regression line continued.

22. Know Sure Thing

It is a momentum oscillator based on the smoothed rate-of-change for four different time frames.Buy signals occur when the KST crosses above the zero line, or when the KST crosses above its signal line. Sell signals occur when the KST crosses below the zero line, or when the KST crosses below the signal line. When the KST stays above zero during an uptrend, it confirms the trend. When KST stays below zero during a downtrend, it confirms the downtrend.

Traders also watch for when the indicator diverges with price. If the price is making new highs, but KST isn't, it indicates price momentum is slowing. If the price is making new lows and KST isn't, it indicates sell pressure is slowing.

23. Klinger Oscillator.

Used to determine long-term trends of money flow while remaining sensitive enough to short-term fluctuations to enable a trader to predict short-term reversals.
Uses divergence to identify when price and volume are not confirming the direction of the move. It is considered to be a bullish sign when the value of the indicator is heading upward while the price of the security continues to fall.

24. Keltner Channels

This indicator is similar to Bollinger Bands. Measures the movement of stocks in relation to an upper and lower moving-average band. An overbuy occurs when prices move above the upper band, and an oversell occurs when prices move below the lower band.

25. Ichimoku Cloud

Shows support and resistance, and momentum and trend directions for a security or investment.

26. Hull MA

Used to average price (smooth price fluctuation) and reduce a lag that other moving averages have.

27. Envelope.

Formed by two moving averages that define upper and lower price range levels. An envelope is a technical indicator used by investors and traders to help identify extreme overbought and oversold conditions in a market. Many traders use an envelope so that a sell signal occurs when price reaches the upper band, signifying an overbought market, and a buy signal occurs when price drops to the lower band, representing an oversold market.

28. Elders Force Index

An indicator that uses price and volume to assess the power behind a move or identify possible turning points.

A positive price change signals that buyers were stronger than sellers, while a negative price change signals that sellers were stronger than buyers.

29. Ease of Movement

Used to illustrate the relationship between the rate of an asset's price change and its volume. It is an indicator that attempts to identify the amount of volume required to move prices. Generally a value greater than zero is an indication that the stock is being accumulated (bought) and negative values are used to signal increased selling pressure.
A high positive value appears when prices move upward on low volume. Strong negative numbers indicate that price is moving downward on low volume.

30. Donchian Channels

It consists of two lines that are drawn at the highest and lowest prices for a specified period of time.The Upper line displays the highest price achieved in the last 24 hours and the Lower line displays the lowest price achieved in the last 24 hours. These lines can act as support or resistance when price comes into contact with them. The rationale is that price has already bounced off of those levels once before (when it made the previous high or low) and could bounce off those levels again in the future.

31. Directional Movement Index

Attempts to quantify the trending or directional behaviour of a market. It is one of the best trend following indicator in technical analysis. It helps identify trends and whether or not price is moving quickly enough to be worth a long or short play.

32. Correlation Coefficient

This is a statistical measure that reflects the correlation between two securities. The Correlation Coefficient is positive when both securities move in the same direction, up or down. The Correlation Coefficient is negative when the two securities move in opposite directions

33. Coppock Curve

This is an indicator for long term stock. A buy signal is formed when there is an upturn in the curve after an extreme low in the curve. A sell signal is formed when there is a higher peak in stock prices but a lower peak in the Coppock curve.

34. Commodity Channel Index

This can be used to identify a new trend or warn of extreme conditions. CCI is relatively high when prices are far above their average. CCI is relatively low when prices are far below their average. In this manner, CCI can be used to identify overbought and oversold levels.

The CCI usually falls in a channel of -100 to 100. The conventional CCI trading system works as follows. When it rises above 100, buy and hold until CCI falls back below 100. When CCI falls below -100, sell short and cover the short when it rises above the -100 line. Some trading systems cover on a rise above minus 85.

35. Choppiness Index

A choppy market is on whose prices swing up and down considerably but with no resulting overall price movement in either direction.

Choppiness Index is designed to measure the market's trendiness (values below 38.20) versus the market's choppiness (values above 61.80).  When the indicator is reading values near 100, the market is considered to be in choppy consolidation. The lower the value of the Choppiness Index, the more the market is trending

36. Chande Momentum Oscillator

RSI (Relative Strength Index) calculation as basis by using price movements over periods instead of the price change over one period.

Positive CMO values are considered bullish and negative CMO values are considered bearish. Bullish whereby investors consider the stock price will rise and they buy whereas bearish is whereby investors consider the stock price will fall and they sell. The CMO indicator's overbought and oversold levels are considered +50 and -50 respectfully.

37. Chande Kroll Stop

This is a trend-following indicator that identifies the stop loss for a long or short position by using a variation on directional movement. It is calculated on the average true range of an instrument’s volatility.

38. Chaikin Oscillator

Chaikin Money Flow measures the amount of Money Flow Volume over a specific period. A positive CMF value signals accumulation, while a negative CMF value signals distribution. A reference line is drawn at zero to help quickly identify accumulation/distribution regions. The further the distance from the zero reference line, the stronger the signal.

39. Balance of Power

Measures the strength of buyers compared to sellers by assessing the ability of each to push price to an extreme level. Buy when the scale is positive and sell when it is negative.

40. Awesome Oscillator

Shows the market momentum of a recent number of periods compared to the momentum of a larger number of previous periods. Buy when Awesome Oscillator becomes positive. Sell when Awesome Oscillator becomes negative.

41. Average True Range

The Average True Range (ATR) is an indicator that measures volatility. A stock experiencing a high level of volatility will have a higher ATR, and a low volatility stock will have a lower ATR.

42. Aroon

This is used to measure whether a security is uptrend or downtrend and the magnitude. It basically shows new trend beginning. Aroon up (blue line) measures the amount of time it has been since the highest price during that period. Aroon down (red line) measures the amount of time since the lowest price during that time period.

43. Arnaud Legoux Moving Average

Removes small price fluctuations and enhances the trend by applying a moving average twice.

44. Advance/ Decline

The number of stocks that closed at a higher price than the previous day's close, and  the number of stocks that closed at a lower price than the previous day's close. Technical analysts looks at advances and declines to analyse the overall behaviour of the stock market, in order to discern volatility and to predict whether a price trend is likely to continue or reverse. Typically, a market will be more bullish if more stocks advance than decline.

45. Accumulation/ Distribution

Accumulation/Distribution is a momentum indicator which takes into account changes in price and volume together. The idea is that a change in price coupled with an increase in volume may help to confirm market momentum in the direction of the price move.

If the Accumulation/Distribution indicator is moving up the buyers are driving the price move and the security is being accumulated. A decreasing A/D value implies that the sellers are driving the market and the security is being distributed.



Abacus is the result of over 10 years market experience and is licensed as a data vendor by the Nairobi Securities Exchange

Contact Us

Tel: +254 792 753 774