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Online Share Trading

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Chart questions

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mwk
Frequent Contributor
In regards to the charting tool... Stochastics - red is the buy line, and blue is the sell line? MCAD - zero (-0-) is the trigger line. What is the blue line?
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16 REPLIES 16
cfm
Super Contributor
The blue line is a 9 period EMA of the MACD line. One can use crossovers of the signal and MACD lines as early warning signals or even trade signals if you are very agressive.
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mwk
Frequent Contributor
Thanks. I wondered whether the blue line on the MCAD line was some type of moving average.
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Tango
Super Contributor
MACD signal line cross is a lagging indicator. Nothing wrong with that, but make sure you understand it is a trend-following indicator and if you trade crosses when there is no trend (range-bound) then you will often be on the wrong side and keep getting bitten by the whipsaws. MACD histogram is much better as a leading indicator.
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mwk
Frequent Contributor
Yep. Thanks for the heads up. What about the stochastics chart? Any idea as to which is the buy line?
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Tango
Super Contributor
there is no 'buy' line. It's an oscillator, simply swings back and forth. Can be used in a few ways - can tell you whether the pressure is on the buy or sell side (direction of the line), can tell you whether the counter is in a relatively oversold/overbought condition, can be used to show divergence between price action and the indicator, and you can use crosses of the fast and slow stochastics to give you buy and sell signals. But there is no line that specifically says buy. Try a handful of indicators of different types, understand them properly, and then use the confirmation of a few indicators to give you signals. You can't pick one and then just buy or sell on the crosses. Obviously price and volume are your primary indicators, but beyond that I would recommend looking at EMA's, MACD (and in particular the histogram), RSI, and a momentum oscillator like ROC or SIROC. And maybe something like ADX as a trend indicator.
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mwk
Frequent Contributor
Hmmm. My USA-based online share trading account has a chart tool that labels one of the stochastics lines as a sell line and the other as a buy line.
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Not applicable
When the buy line crosses the sell line from the bottom, that's you buy signal.
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mwk
Frequent Contributor
Yes. That's my understanding. Strictly speaking, the two lines are neither "sell" nor "buy" lines, but in effect, their interaction signals buy or sell. Of course, no single chart can be used to make buy or sell decisions (as mentioned by Tango earlier), but they help. But which line is which, on the chart tool provided with our wonderful Standard Bank online share trading website?
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cfm
Super Contributor
Stochastics use the %D and %K notation. I have never seen the buy/sell notation for the lines. Look at the same underlying on both charts and see if you can spot the similarity. Then you should be able to figure out the difference in the naming.
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Not applicable
Red line is buy, on this site. Look at the chart of SOL and check ot Stochastic... Buy signal. I use Stochastic with MACD and ADX (Trend) when making a call.
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mwk
Frequent Contributor
The main line (%K) is the red line. And the moving average (%D) is the blue line. Is this correct?
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mwk
Frequent Contributor
Thanks Tango - great link. But I'm not asking how to interpret the stochastic chart. I've used this and other charts for years. What I'm asking is which line is which on the Stanbank stochastics chart. There is no legend. Is blue the moving average?
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cfm
Super Contributor
On the SFM charts, the blue line is %D, the 3 period EMA of the red line (%K). %K is fixed to a 14 period stochastic.
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mwk
Frequent Contributor
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Not applicable
I use Stochastics almost to the exclusion of any other indicator, and stick to two very basic rules - Never long anything with the STO higher than 90, and never short below STO 20.
Obviously, like most systems, it's not foolproof - case in point being DRD: The above would have ruled that a short below STO20 is not permissable - hindsight shows otherwise. Having said that, the system is nevertheless very simple and pretty good at weeding out what could be a stupid trade.
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