Day Ranges to choose for indicators

R

rahulg77

Member
#1
#1
Hi to all,

I have started learning TA. I had a few queries which i hope to be answered here by so many senior learned members of the forum.

1. When we talk abt 15/20/50 day simple moving averages for a weekly chart we will have 15/20/50 week average. Right. Now my question is in a 20 day weekly simple moving average do they take the closing prices of every week(mostly fridays) and divide the last 20 weeks closing price by 20 or they take closing price of every day of the week and divide it by 5 days and come with every weeks average and then find 20 weeks average. Sorry i am not able to ask this question in a concise form but i hope u will comrehend.

2. Also when we see different indicators like moving average and cross over moving average. what time period should we look at. Like 20 day moving average. Should we use different time periods for weekly chart and monthly chart. Are certain time periods more suitable to indian stocks or does it depend upon the market volatility.

3. In RSI to find RS we take Average Gain= Total Gains/N and Average Loss= Total Loss/N. In this we take maybe a 14 day period. can we change the period and if yes do we increase the period or reduce and what effect will it have. Difference between First RS and smoothed RS and which one is better to use.

4. finally I would like to know do we need to know the formulas and undertsand the logic behind the formulas or just getting used to the indicators and time periods to do our study is enough.

Regards

Rahul
 
A

aca_trader

Active Member
#2
#2
rahulg77 said:
Hi to all,

I have started learning TA. I had a few queries which i hope to be answered here by so many senior learned members of the forum.

1. When we talk abt 15/20/50 day simple moving averages for a weekly chart we will have 15/20/50 week average. Right. Now my question is in a 20 day weekly simple moving average do they take the closing prices of every week(mostly fridays) and divide the last 20 weeks closing price by 20 or they take closing price of every day of the week and divide it by 5 days and come with every weeks average and then find 20 weeks average. Sorry i am not able to ask this question in a concise form but i hope u will comrehend.

2. Also when we see different indicators like moving average and cross over moving average. what time period should we look at. Like 20 day moving average. Should we use different time periods for weekly chart and monthly chart. Are certain time periods more suitable to indian stocks or does it depend upon the market volatility.

3. In RSI to find RS we take Average Gain= Total Gains/N and Average Loss= Total Loss/N. In this we take maybe a 14 day period. can we change the period and if yes do we increase the period or reduce and what effect will it have. Difference between First RS and smoothed RS and which one is better to use.

4. finally I would like to know do we need to know the formulas and undertsand the logic behind the formulas or just getting used to the indicators and time periods to do our study is enough.

Regards

Rahul
Click to expand...
My 2 cents:

1. The close of the week only that is of friday is taken in weekly charts. Like for monthly charts, closing price on the last day of the month is used.

2. Choice of a particular period for a particular stock is stock-dependent. For example, a 20-day MA may be suitable for stock X while 25-day MA may work better for Stock Y. One has to try and find out the most suitable period for every stock. Most of the softwares today are equipped with optimization facility which can provides results as to the suitability of a particular period or a particular indicator for different stocks.

3. The reply to question 2 is applicable to question 3 as well. RSI for a lesser or higher period may be used depending upon the nature of particular stock. So far as RSI and smoothed RSI is concerned, simple RSI will help capturing more moves as compared to smoothed RSI but will at the same time give more whipsaws as well. It's true for all of the momentum indicators.

4. It's one's own judgement as to the depth he wants to go into. Some of the persons may not like using any indicator till they know the logic behind it while some others may find the need to umderstand logic useless. The preferred way is to get used to the indicators and then try to understand the logic behind it.

Best Regards,
--Ashish
 
R

rahulg77

Member
#3
#3
hi ashish,

Thank you for your reply. thank you for your brief and concise explanation. So basically to understand the time period we try different time periods and see which one has given correct indicators in the past and we then use the same time frame for the present and future. Would that be correct.

I thought its to do with how volatile the share is. If more volatile we would use a longer time frame and vice versa. Also moving crossover average would vary for daily chart, weekly chart and monthly chart. like for daily chart we would use 20 and 50 days. For weekly 17 and 43. Any particular thing like this.

Please if you could also explain what you meant by "Most of the softwares today are equipped with optimization facility which can provides results as to the suitability of a particular period or a particular indicator for different stocks"

kind regards

Rahul
 
A

aca_trader

Active Member
#4
#4
rahulg77 said:
hi ashish,

Please if you could also explain what you meant by "Most of the softwares today are equipped with optimization facility which can provides results as to the suitability of a particular period or a particular indicator for different stocks"

kind regards

Rahul
Click to expand...
The trading softwares come with inbuilt options which scan the past data with the indicators one want to use. These can be manipulated to see which of the time periods provide best result for a particular stock. For example, One can analyse past data with an RSI of say 9 days and compare the results obtained with RSI of 14 Days and compare the results. This way one can see what particular time period or for that matter even a particular indicator is suitable for the given stock.

Hope, it's clear now.

Best Regards,
 
R

rahulg77

Member
#5
#5
aca_trader said:
The trading softwares come with inbuilt options which scan the past data with the indicators one want to use. These can be manipulated to see which of the time periods provide best result for a particular stock. For example, One can analyse past data with an RSI of say 9 days and compare the results obtained with RSI of 14 Days and compare the results. This way one can see what particular time period or for that matter even a particular indicator is suitable for the given stock.

Hope, it's clear now.

Best Regards,
Click to expand...
Yes very very clear. Thank you.

Best Regards
 
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