Glossary

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M

Mass Index: Developed by Donald Dorsey, this is an indicator that is used to gauge a potential reversal in trends. A significant pattern referred as the “reversal bulge” occurs when the Mass Index surpasses 27 then declines pass 26.5. When a “reversal bulge” occurs, used in conjunction with a 9 period exponential moving average, a buy signal is given if the 9 period EMA is trending upwards and a sell signal is given if the 9 period EMA is trending downwards. 

 

Money Flow Index (MFI): A momentum indicator that is similar to the RSI except that MFI accounts for the changes in the volume. MFI is used to gauge a potential reversal in trends where a divergence between MFI and the price may provide an early warning of a potential reversal in the trend.

 

Moving Average Convergence/Divergence (MACD): Developed by Gerald Appel, MACD consists of two lines referred to as the MACD line and the signal line. The MACD line is the difference between two exponential moving averages (typically 12 and 26 periods) of closing prices. The signal line is usually a 9 period exponential moving average of the MACD line. Signals are given when the two lines crosses.

 

MACD histogram: A derivation of the MACD system that plots the difference between the signal and MACD lines providing a better visual presentation of the spread.

 

Momentum: Momentum measures the rate of change or price differences over a selected span of time. For example to construct a 20 day momentum line, subtract the closing price 20 days earlier from the latest closing price and the resulting positive or negative figure is plotted above or below a zero line. Momentum is often used as a technique to construct an overbought-oversold oscillator.

 

Moving average: Moving averages are trend following indicators that work best in a trending environment. The key feature of moving averages is that they help to smooth out short term volatility and it is also because of this very nature, they also introduce a time lag. There are generally three types of moving averages, namely simple, weighted and exponentially smoothed averages. Any number of moving averages can be used under any time spans to generate trading signals. When only one average is used, a buy signal is given when the price closes above the average whereas a sell signal is given when the price closes below the average. When two averages are employed, a buy signal is given when the quicker (shorter period) average crosses above the slower (longer period) average whereas a sell signal is given when the quicker average crosses below the slow average.

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