Forex Technical Indicator : Standard Deviation

Standard Deviation — value of the market volatility measurement. This indicator describes the range of price fluctuations relative to simple moving average. So, if the value of this indicator is high, the market is volatile, and prices of bars are rather spread relative to the moving average. If the indicator value is low, the market can described as having a low volatility, and prices of bars are rather close to the moving average.

Normally, this indicator is used as a constituent of other indicators. Thus, when calculating Bollinger Bands, one has to add the symbol standard deviation value to its moving average.


Calculation
StdDev = SQRT (SUM (CLOSE - SMA (CLOSE, N), N)^2)/N

Where:
SQRT — square root;
SUM (..., N) — sum within N periods;
SMA (..., N) — simple moving average having the period of N;
N — calculation period.Forex technical Indicator's ; A Technical Indicator is a series of data points used to predict movements in currencies.
The most popular technical indicators of the Forex:
1- Relative Strength Index (RSI): This index is a popular indicator of the Forex (FX) market. The RSI measures the ratio of up-moves to down-moves and normalises the calculation so that the index is expressed in a range of 0-100. If the RSI is 70 or greater then the instrument is seen as overbought (a situation whereby prices have risen more than market expectations). An RSI of 30 or less is taken as a signal that the instrument may be oversold (a situation whereby prices have fallen more than the market expectations).

2- Stochastic Oscillator: This is used to indicate overbought/oversold conditions on a scale 0-100%. The indicator is based on the observation that in a b up trend, closing prices for periods tend to concentrate in the higher part of the period’s range. Conversely, as prices fall in a b down trend, closing prices tend to be near to the extreme low of the period range.

3- Moving Average Convergence Divergence (MACD): This indicator involves plotting two momentum lines. The MACD line is the difference between two exponential moving averages and the signal or trigger line which is an exponential moving average of the difference. If the MACD and trigger lines cross, then this is taken as a signal that a change in trend is likely.

4- Number theory:

a- Fibonacci numbers: The Fibinacci number sequence (1,1,2,3,5,8,13,21,34…..) is constructed by adding the first two numbers to arrive at the third. The ratio of any number to the next larger number is 62%, which is a popular Fibonacci retracement number. The inverse of 62%, which is 38%, is also used as a Fibonacci retracement number. (used with the Elliott wave theory, see hereunder) .

b- Gann numbers: Gann was a stock and a commodity trader working in the 50’s who reputedly made over $50Mio in the markets. He made his fortune using methods which he developed for trading instruments based on relationships between price movement and time, known as time/price equivalents. There is no easy explanation for Gann’s methods, but in essence he used angles in charts to determine support and resistance areas and predict the times of future trend changes. He also used lines in charts to predict support and resistance areas.

5- Elliott wave theory: The Elliott wave theory is an approach to market analysis that is based on repetitive wave patterns and the Fibonacci number sequence. An ideal Elliott wave patterns shows a five wave advance followed by a three wave decline.

6- Gaps: Gaps are spaces left on the bar chart where no trading has taken place.

* An up gap is formed when the lowest price on a trading day is higher than the highest high of the previous day.
* A down gap is formed when the highest price of the day is lower than the lowest price of the prior day. An up gap is usually a sign of market strength, while a down gap is a sign of market weakness.
* A breakaway gap is a price gap that forms on the completion of an important price pattern. It signals usually the beginning of an important price move.
* A runaway gap is a price gap that usually occurs around the mid-point of an important market trend. For that reason, it is also called a measuring gap.
* A exhaustion gap is a price gap that occurs at the end of an important trend and signals that the trend is ending.

7- Trends: A trend refers to the direction of prices. Rising peaks and troughs constitute an uptrend; falling peaks and troughs constitute a downtrend, that determine the steepness of the current trend. The breaking of a trendline usually signals a trend reversal। A trading range is characterized by horizontal peaks and troughs. Moving averages are used to smooth price information in order to confirm trends and support and resistance levels. They are also useful in deciding on a trading strategy particularly in futures trading or a market with a b up or down trend. For simple moving averages, the price is averaged over a number of days. On each successive day, the oldest price drops out of the average and is replaced by the current price- hence the average moves daily. Exponential and weighted moving averages use the same technique but weight the figures-least weight to the oldest price, most to the current.


Forex Technical indicators: Parabolic SAR - Stop & Reverse
Parabolic SAR from Metaquotes is a very useful technical indicator during trending periods. However, it shouldn’t be used if there is no trending period. Trend periods exist approximately 30% of the time.

In trending markets it provides useful entry and exit points. The name parabolic comes from its shape which is like a parabola. SAR lets our investor follow the dots in an upward or downward trend until SAR is reached and then the trend reverses.

SAR’s stop loss is calculated for each day via the previous days data. The first entry point can be seen when the latest high price has been broken – now the SAR is placed at the most recent low price.

Now as the price starts to rise, the dots on the chart rise as well – starting slowly and then going on with increasing speed in the direction of the trend.

Before you consider using SAR, make sure you actually are working with a trending market as otherwise you’re dead. To do that you can either use a trend indicator or stop trading SAR once you have been whipsawed twice in a row.

To get a trade signal you’ll need to wait until price bars and stop levels intersect. You should go long when price meets Parabolic SAR stop level, while short. And vice versa. Note that Parabolic SAR is more popular for setting stops than for establishing direction or trend. First wait for the establishment of a trend and then trade in the direction of a trend with Parabolic SAR. If the trend is up, buy when the indicator goes below the price. If the trend is down, sell when the indicator goes above the price.

You should ignore signals when the price is ranging or basically when you don’t see any major movements. Exit when price activates the SAR stop. Do not go short when moving average is going upwards. Go long when price crosses back above the top and MA is still upwards.

I have been searching, but so far I haven’t been able to find the exact formula on how the Parabolic SAR is constructed. But there are two variables – step and maximum step. The sensitivity of the indicator depends on the step size – the higher the more sensitive. You shouldn’t set it too high as then you won’t get a too good reading. The maximum step controls the adjustment of the SAR within the price movements. The lower the maximum step is set, the further the trailing stop will be from the price. Good values for the steps are – step=.02 and maximum step .20.

Example Parapolic SAR

PS: Parabolic SARS can be used in conjunction with the Williams %R indicator as they tend to function similar way on certain trends and signals. Also HLOC or candlesticks charts could be used to study SAR a bit better as these include days high and low prices as well.

PS2: I finally managed to find the calculation for Parabolic SAR.

SAR(i) = SAR(i-1)+ACCELERATION*(EPRICE(i-1)-SAR(i-1))

Where:
SAR(i-1) — is the value of the indicator on the previous bar;
ACCELERATION — is the acceleration factor;
EPRICE(i-1) — is the highest (lowest) price for the previous period (EPRICE=HIGH for long positions and EPRICE=LOW for short positions). (thanks to Metaquotes.net