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1Using Market Master Xec

Moving Averages& Indicators

The basis of much technical analysis centres on drawing and analysing moving averagesand various indicators.

Moving Averages are one of the oldest forms of technical analysis and are used to try andsmooth out the daily market fluctuations all shares experience, and display the underlyingmarket trend. Moving averages have been refined over the years and many types exist. YourMarket Master program will calculate and display all the popular types used.

As mentioned in the “Types of Charts and their Scaling’, Indicators are derived from Lineand/or Bar charts and display a single point of data for each day. Usually some formula hasbeen used that processes the close and in some instances the High, Low and/or volumetraded to produce a new representation of the data such that you can more easily (comparedwith looking at just the close or bar data) see when to buy or sell. Since this new chart“Indicates” when you should buy or sell, it’s called an Indicator.

There are numerous Indicators available today. Some are proprietary Indicators, developedby the company that produced the software (EasySoft’s SIROC, Exponential Oscillator, etc.).Others use common public knowledge formulae (RSI, On Balance Volume,Overbought/Oversold, etc.) and these identically constructed Indicators are available onmany different software programs. With your Market Master program, if you have theadditional Indicators Basket module and Microsoft Excel, you can even create your owncustom indicators.

What Numbers should you use?

Use the Periods that give the best results! - But which are these? Where do you start? Theseare the most common questions asked about moving averages (and the various Indicators youmay use).

Leonardo Fibonacci (1170-1230), was an Italian mathematician who discovered an extraordinarymathematical series in which each number is the sum of the two preceding ones ( 1, 2, 3, 5, 8, 13,21, 34, 55 ... etc.). Any number in the series divided by its predecessor yields a ratio ofapproximately 1,618. If a Fibonacci number is divided by its successor a ratio of 0,618 is obtained(this ratio is less exact for the lower numbers in the series). Between alternate numbers in theseries the ratio of the higher to the lower number is approximately 2,618, and the lower to thehigher, 0,382.

The ratio 0,618:1 is the so-called “golden ratio”, and occurs in many natural objects from the spiralgalaxies of outer space, to snail shells and micro-organisms. For example, a sunflower has 89curves, of which 55 wind in one direction and 34 in the other. Trees always branch from the basein a Fibonacci series. Many man made objects (playing cards, your credit card), are made to thisgolden ratio dimension, as the results are pleasing to the human eye.

What does all this have to do with the stock market? Investors have found that when one ispicking a time period for a moving average (or an indicator) the periods 5, 8, 13 which areregarded as short term, 21,34,55 as medium term and 89, 144 and 233 for long term oftenproduce good results. Elliott Wave followers also present evidence that these ratios frequentlyrepresent the relationship between an impulse wave and its subsequent corrective wave (allcovered later).

Either way, plain practical experience has shown these numbers to be the best starting placewhen deciding what periods to use for your moving average. Start here, and fine tune as required.


Applying a Moving AverageYour Program will display five different types of moving averages. We start with an exampleof opening the graph AFLIFE and maximising it.

You will now have a screen very similarto the one shown on the right.

Right click to display the menu shownhere. The second option is for movingaverages. This was one of the firstindicators devised and is traditionally superimposed on the original chart.Select the “Moving Average” option andyou will see the following dialogue box.

Select the type of moving average you wish to use from the available options (Centred, Complex,Exponential, Simple & Weighted). The Exponential MovingAverage is the default type and the one you should normallyuse. Next, select the period to use. For this example we willuse a 13-period (since this is a daily chart, this means we areusing a 13-day moving average).

Now repeat this process twice and choose a 34-day Exponential Moving average and thenan 89-day average.

Moving Averages & Indicators


If needed, click the Zoom Out ( ) button and your screen will look like this one. YourMarket Master program will let you display as many moving averages as you can practicallyview. Each moving average will be displayed in a different colour for easy identification. Atthe bottom left of the screen, a description in the same colour as the moving average isdisplayed. The E13 in the example refers to the 13-Period Exponential Moving Average(S=Simple, C=Complex, W=Weighted, X=Centred).

If you want to change the period of the moving averageor its properties (e.g. colour, line style or the thickness ofthe line), then right click over the descriptor of the movingaverage you wish to modify. You will see a menu similarto the one shown here. Select the desired option. If youwant to remove the moving average completely, followthe same procedure and select the “Remove” option.

The option to “Insert an Indicator of a Moving Average”will be discussed later (see page 23).

If you have a numberof charts displayed onyour screen (eithershares and/orindicators) as shownhere, you can overlaya moving averageonto any of the charts.In this example, todisplay the movingaverage of theMomentum indicatorwe moved our mousecursor into that areaand then right clickedto display the abovemenu.

Many of the program commands that will bediscussed on the next few pages relating toinserting and/or overlaying graphs and IndicatorsARE ONLY available by using the right click ofthe mouse when the mouse cursor is placed overthe relevant part of the screen.

For many features, there is NO equivalentmenu or keyboard command.

Additionally, for many features there is also NOequivalent Tool Bar Button command.



Selecting the MovingAverage optionchoosing theExponential MovingAverage at a 13-dayperiod, produces theresults shown here.

You can use theMoving Averageoption from theAnalysis menu, or thecorresponding button

, however, in boththese instances, youmust FIRST tell theprogram which graphto overlay the movingaverage on. Do this byclicking once in thedesired graph to make it the active graph.

The Active Graph has a slightly thicker border aroundits description. In the example shown on the previouspage, the share price of AFLIFE is on top with itsMomentum indicator below. Note the slightly thicker border around the“Momentum” description compared to the “1.AFLIFE ” description.

Since you have to first click on the graph to make it active and then click on the button orselect the menu option you can immediately see the benefit of just right clicking as thisautomatically selects the correct screen. If you want to put a moving average onto anoverlaid graph (or as you will do later in this section, an overlaid indicator), you have to usethe right click of the mouse method.

Using the overlaid graph example explained in ‘Multiple Graphs and Overlays’, move overthe MET-LTD description and right-click to display the menu option shown below:

Select the “MovingAverage” option andchoose a 55 dayExponential MovingAverage. The result isshown here. Notehow the movingaverage is on theoverlaid graph ofMET-LTD and not theprimary or main graphof AFLIFE.



The moving averagedescription (E55) isstill placed in thelower left corner.You can modify theperiod and/orproperties of thismoving average inthe normal way byright clicking overthe description.

As a quick way, if you want to change the period ofthe moving average, just double-click on thedescriptor to bring up the Moving Average boxshown here. Adjust the type and/or value, click“OK” and the moving average is changed to thenew values.


Displaying an IndicatorWe now come to the stage of inserting our first Indicator. Up to now we have inserted a fewindicators as part of some previous examples (see page ?). We now go into greater depth oninserting and overlaying Indicators.

This section is not designed to teach you how to interpret indicators, but rather how to useyour Market Master program to quickly and easily display indicators. The online help will giveyou further information on interpreting indicators, but you should refer to material devoted tothis subject for a more comprehensive detailed discussion.

If you only have the Market Master program(i.e. you do not have the indicators module), youwill be able to access all the features discussed here except the creation of Customindicators using the hot link into Excel (a feature of the Indicators module). A number of theadditional indicators are only available with the Indicators module, however the mechanicsused in displaying them is identical to that of other “standard” indicators.



Insert an Indicator

Display a share on your screen and maximise the window.Position your cursor within the graph area and right click inorder to bring up the following menu. Select the “Applyindicator” option. In this instance you could have also selectedthe Indicator option from the Analysis menu or clicked on theIndicator button ( ).

You will now have the “Choose an Indicator” screen shown justbelow. You can scroll through the indicator list and select anyof the indicators. In the example below, we have selected theRSI Indicator. (The button “Get Optimiser Results” will bediscussed in a later section - see page ?). Although the itemsin the “Analysis” section will be discussed later (page 16) and can be used now, they aremainly used in conjunction with the Highlighter testin..

There are a number ofother fields of informationthat you may also need tofill in. Depending on theIndicator you choose, youmay need to enter none,one or two values forPeriods. In this example,with the RSI selected, youneed to enter a singleperiod - the second periodfield is greyed out. SomeIndicators will need twoperiods (SIROC, Exponential Oscillator, etc.), while some will not need any (OBV, VolumeData). Refer to the discussion on page 5 for suggestions on what values to use for thePeriod(s).

If you select the “Relative Strength Comparison” Indicator, you will need to enter the RSShare name to be used when comparing the two sets of data (i.e the current data and the RSShare’s data - see page 11).

When the “Choose an Indicator” window is displayed, if you change your mind and do notwant to insert an Indicator, click Cancel.



Click OK to insert theselected indicatorusing the selectedperiod(s). If youclicked OK on theChoose an Indicatorscreen as per theexample on theprevious page (i.e.you selected a 21-dayRSI indicator), yourscreen would nowlook as shown here.

If as you select anIndicator, you knowthat you will want tooverlay a movingaverage on it as well,you can do this byticking firstly the “Overide Auto Alerts” option and then the “Crossover” in the Analysissection (see page 16).

Your screen has two charts, the top graph is the Closing price ofAFLIFE (1.AFLIFE Close) and the second graph is a 21-day RSIof AFLIFE (2.RSI 21 of 1.AFLIFE).

Should you right click over the second graph, you will note theextra option at the top of the menu as shown here. If at a laterstage you wish to remove the second graph from the screen andreturn to a single graph screen, select the “Remove this screen”option.

If you want to change the indicator graph to that of a differentIndicator or if you want to change the period of the Indicator,move the mouse over the name at the top left of the secondgraph (2.RSI 21 of 1.AFLIFE) and the cursor will change shapeto the “graph” ( ) function cursor. Right clicking displays the menu shownhere. Select the “Change this Indicator” option. You will havethe same “Choose an Indicator” dialog box displayed as shownon page 9. Select a new indicator and/or change the currentperiod value.

The short-cut is to double-click on the indicator name whichimmediately pops up the “Choose an Indicator” box.



Inserting a Relative Strength Indicator

Follow the same methoddiscussed earlier (see page9) to pop up the “Choose anIndicator” window. Selectthe “Relative StrengthComparison” indicator. Youwill next need to enter theRS Share name (the nameof the share that you wantto display the main graphrelative to). In this examplewe have chosen the JSXfinancial sector index (JSE-FIN).

If, as you select an Indicator, you know that you will want to overlay a moving average aswell, you can do this by ticking firstly the “Override Auto Alerts”, and then the “Crossover”options in the Analysis section (see page 16).

Your screen should nowlook similar to this one.

The graph on the top is theclose price of AFLIFE. Thegraph below is the RelativeStrength of AFLIFE relativeto the JSE Financial Index,JSE-FIN.



Overlaying an Indicator

Now go back to the point where you only had a single graph ofAFLIFE on the screen, with no indicator displayed below it.Right click in order to pop up the following menu (the followingmethod does NOT have an equivalent menu or keystrokeoption). Now select the “Apply Indicator” option. We willdiscuss the button command later.

You will have the same “Choose an Indicator” dialog box asshown on page 9. Select the RSI Indicator and as before, usea 21-day period. Under the Layout option, select Overlay. DONOT select any Analysis (i.e. no moving average or limits thistime).

Your screen will look like this when you click OK.

Instead of two graphs, Share on top and Indicator below, the indicator has beensuperimposed or overlaid on the share price graph. Note how in the top right corner, in thesame colour as the overlaid indicator is its description (1.RSI 21 of 1:AFLIFE). Note also thatyou have two vertical scales. The one on the right is the same colour as the share price and



relates to it. The one on the left is in the same colour as the overlaid indicator and shows itsvalues.

If you want to perform any functions related to this overlaidindicator, move the mouse over the name at the top right of thescreen (1.RSI 21 of 1.AFLIFE) and the cursor will changeshape to the “graph” ( )function cursor. Right clickingdisplays the menu shown here.

You can change the indicator and/or its period(s) with the“Change this indicator” option. Use the “Remove this indicator”to do just that! Properties (colour, line style and thickness)applies to the overlaid indicator.



Using the Auto Indicator Periods

In all the examples so far,we have always entered thevalue of the period to usewith each indicator weselect. As shown here, weselect to use a 21-periodMomentum.

If, however, you select the“Auto” options as shownhere, the program willautomatically select thedefault period for theselected indicator. At thispoint we only selectMomentum and click OK.

The above automaticallyselects a period of 34 for theMomentum indicator.

Your Market Master comeswith default values for allindicators. If you want tochange these, un-tick“Auto”, select an indicatorand enter a period. Then,call up the “Choose anIndicator” box and re-tick“Auto” the last period youused for that indicator willbecome your default valueuntil you change it at sometime in the future.



Using the Auto Relative Strength option

When we discussed the Relative Strength indicator, previously, we entered the name of theshare to be used in the calculation. However, when looking at a Relative Strength chart, youusually want to see a share relative to the Index for the market sector the share is in.

If you are looking at the UKbanking share BARCLAYS,you probably want to view itrelative to the FT-BANKindex. As shown in theexample here, we leave theword AUTO in the RSShare field. We could over-type this and enter any validshare name if needed.

If we leave AUTO and clickOK with the RelativeStrength Comp indicatorselected, we get thefollowing results:

The program automaticallyrecognised that BARCLAYSis a UK banking share andthus selected the FT-BANKindex for the comparison.The same applies for otherstocks from differentexchanges or sectors.



Using the Indicator Analysis features

If, as you select an Indicator, you know that you will also be wanting to overlay a movingaverage on it, you can do this by firstly ticking “Override Auto Alerts” and then ticking“Crossover” in the Analysis section.

Start off by opening a shareand then “Apply indicator”(as per example on page9). You have the “Choosean Indicator” window asshown here. Again choosea 21-day RSI indicator, butthis time enter a movingaverage period and ifneeded, an upper and lowerlimit (the RSI indicator isoften used in conjunctionwith set limits). Tick theCrossover and/or the Limits boxes. By default, the Exponential Moving Average will be used.

In the example screen a 13-period Moving Average hasbeen selected (i.e.Crossover ticked and 13entered). Limits of 70 and30 have also been selected.The results are shown here.



Using the Indicator Tool Bar

Both of the above ways of displaying an Indicator (i.e. Inserting or Overlaying) can be veryeasily accomplished by using the Indicator tool bar shown above. The first two drop downmenu boxes are used for entering the first/second period(s) to use with the indicator. Thenext two buttons determine if the selected indicator will be overlaid (1st button ) on thecurrently active graph or inserted (2nd button ) below the last screen. As you select theone option, the other is automatically de-selected. Next there are a number of buttonsrepresenting each indicator (Sir=SIROC, Exp = Exponential Oscillator, etc.). Move yourmouse over a button and read the Status Bar or wait a few seconds for the tool tip. If needed,you will have customised the Indicator Tool Bar to contain the indicators you frequently use.When you need to add an indicator that is not on the Indicator Tool Bar, you can right clickover the current screen’s descriptor and use the resultant menu to Insert/Overlay theindicator as discussed earlier.

If you want to change the indicator and/or its period(s) on a currently displayed graph, youneed to use the right mouse button methods described previously. Alternatively, remove thescreen/indicator and use the Indicator Tool Bar to insert/overlay the new Indicator/Period(s).

Steps to follow when using the Right Mouse Button Method

1 : Right click and select either the Insert or the Overlay option.2 : Select the indicator you want to use.3 : Enter the period(s) needed for the chosen indicator and click OK.

The indicator chosen in step 2 will be either overlaid or inserted based on yourchoice in step 1 using the period(s) you chose in step 3.

Steps to follow when using the Indicator Tool Bar Method

1 : Select or enter the periods you will use with the indicator.2 : Select either the Insert or the Overlay button.3 : Click on the indicator you want.

The indicator will be either overlaid or inserted based on your choice in step 2using the period(s) you chose in step 1.



Indicator of Overlaid Graphs

When you right click andselect the “Apply indicator”option, the insertedindicator is of the maingraph. In the followingexample, if you right-clickedand inserted an indicator asshown, you would have thefollowing:

The 34-day Momentum is ofthe AFLIFE graph and notof the overlaid MET-LTDshare.

To get the bottom chart tobe the indicator of theoverlaid graph, first removethe Momentum indicatorscreen.

Now move over the overlaidgraph’s description and right-clickas shown here. Select the“Apply indicator” option.The resultant graph isshown below.



The 34-day Momentum is ofthe MET-LTD graph.

You could have the best ofboth worlds and display themomentum indicator of bothshares as described below.

Starting with an overlaidgraph, insert an indicator ofthe main chart as shown onpage 18. Now move overthe description of theoverlaid share, right clickand insert an indicator.

We now have the overlaidchart at the top. The secondgraph is the Momentum ofthe main graph (AFLIFE).The bottom chart is theMomentum of the overlaidgraph (MET-LTD).



Indicators of Indicators

Up to now we have insertedjust a single indicator belowa share price chart. Wecould insert a secondindicator using the methodshown here - move over theshare price chart, right clickand choose “Applyindicator”.

If you chose a 34-dayMomentum, you wouldhave the following 3-chartdisplay. The top graph isthe share price of AFLIFE,the second (or middlegraph) is the 21-day RSIindicator of AFLIFE. Thethird or bottom graph is the34-day Momentum ofAFLIFE.

If you wanted to insert anindicator of an indicator,proceed as follows:

Move over the RSI indicatorchart, right click and choose“Apply indicator”.



If you again chose a 34-dayMomentum, you wouldhave the following 3-chartdisplay. The top graph isthe share price of AFLIFE,the second (or middlegraph) is the 21-day RSIindicator of AFLIFE. Thethird or bottom graph is nowthe 34-day Momentum ofthe 21-Day RSI of AFLIFE.You have drawn anindicator of an indicator. There may not always bemerit in drawing anindicator of an indicator, butshould you need to, this isthe method to use.

The final combination is ofan overlaid indicator (seeexample on page 12). Youcould then insert anindicator of the overlaidindicator. Move the mouseover the description of theoverlaid indicator as shownhere. Select to “Insertindicator” and choose a 34-day Momentum.

The result is shown here.The Momentum indicator atthe bottom is not a 34-daymomentum of AFLIFE.Rather it is a Momentum ofthe RSI of AFLIFE.



Indicators of Moving Averages

In the example here wehave the chart of AFLIFEwith a short-term (8-day)moving average. Below thischart is a 34-dayMomentum indicator ofAFLIFE. There may betimes when you would liketo smooth the share priceand calculate the indicatoron that smoothed price.

To do this, place a short-term moving average (5 to11 days) on the share priceas shown here. Now moveover the Moving Averagedescription and right click.Choose “Insert indicator”.

Again select a 34-day Momentum indicator. The results are displayed on the next page.

In the example shown here, we have displayed BOTH a 34-day Momentum of the shareprice and a 34-day Momentum of the smoothed price (i.e. an indicator of a moving average).In practice you probably would only want to display the bottom graph, not both.

The inserted 34-dayMomentum of the movingaverage is shown on thebottom. Note how thisMomentum graph issmoother than the originalMomentum graph.

Often there is merit ingraphing an indicator of thesmoothed price, however,remember that smoothingthe share price introduces asmall delay in any marketreversals. This delay will betransmitted into the signalsthe indicator gives. Youneed to offset the delaysintroduced by the smoother (or easier to recognise) signals given by the indicator, by using“leading” indicators rather than “lagging” indicators.

In practice, always use an Exponential moving average, and then try to keep its period asshort as possible.



Custom Indicators

If you have the Indicator Basket module, you can create Custom Indicator Templates in theMicrosoft Excel program (Excel must be loaded on your machine). Market Master exports thesource data (i.e. your main graph) to the Excel program using Dynamic Data Exchange.Excel, using a formula you have entered, calculates the results and sends this back to theMarket Master program. Market Master then displays this calculated data in the designatedwindow on your program.

Excel was chosen as the vehicle for formula creation due to its flexibility and ease of use.You will, therefore, need to have a registered copy of this program installed on yourcomputer.

The concept behind the custom indicator is simple, yet powerful. Market Master automaticallyestablishes a DDE conversation with Microsoft Excel. It allows you to choose an indicatortemplate, either one you have created or one of the default ones supplied with the program.Market Master then exports the source data to the Excel spreadsheet. Excel then applies theformula you have developed and places the resulting data in the correct location in thespreadsheet. Market Master relies on the resulting data being placed in Row 7, Column 6.Once the data is ready, Market Master imports the data and draws the resulting graph.Market Master dynamically handles source data changing (when you page-down etc.) andmaintains the Custom Indicator link with Excel.

Display a graphand choose to“Applyindicator”.Select “CustomIndicator” asshown here.Enter thedesired periods(i.e 34 and 13and 0) and howmuch data youwant to export.If you have aslow machineand are onlyinterested in thecurrent signals(i.e. you do notneed to lookback manyyears), thenselect 200 or 300 data points to export. Otherwise select “ALL”. Initially, select 200 for thisexample.



You will next be asked for a template touse. The very first time there will be afew pre-defined ones as shown here.Once you have created your ownformula, it will be added to this list. Forthis example we select “Custom 1".Click “Open”.

The very first time you try this, MarketMaster will search for the Excelprogram. You may need to browse andlocate the “EXCEL.EXE” program onyour hard-disk. If you installed MicrosoftOffice (and hence Excel) in thestandard place, you will find this program in the C:\Program Files\Microsoft Office\.

Once Excel has been found,Market Master connects to itand exports the data as shownhere.

The “Custom 1" template doesa simple moving averagecalculation on the data and theresults are as shown here.

You can now Alt-TAB to theExcel program and adjust theformula as you deemnecessary.

The Excel screen is shown onthe next page. Note that thename of this indicator (CustomSmoothing 1) is defined insidethe Excel program.



The two periods (34 and13) that you specified havebeen linked into the Excelspreadsheet. Inside thespreadsheet you can alsospecify if high, low and/orvolume data also needs tobe exported. If you do notneed these, set them toFALSE as this saves time incalculating the indicator.Also specify if the customindicator needs one or twodata periods.

The data coming from theMarket Master program forClose, High, Low andVolume are placed in columns A, B, C and D from row 7 onwards. Since this templatespecified that High, Low and Volume data is not needed, no figures have been exported intothese columns. The resultant data that is exported back to Market Master is placed incolumn F.

You can use as many Excel worksheets and/or other columns to manipulate the data.However, the results you want sent back to Market Master must be in column F starting atrow 7.

In the above example you will note that column F has a lot of “#N/A”. This is because thecurrent formula is a moving average of 34 days. The first 34 data periods are used toproduce the first result placed in data position 34.

Thus as you scroll down asshown here, you will seethe results.

Cell F40 has been selectedand you can see theformula at the top, namely“=AVERAGE(A7:A40)”. Youcan use any of the built-informulas of Excel whencreating your Indicator. Fordetails on creating formulain Excel, refer to the Helpprovided with your Excelprogram.

When you have finalised the structure of your ownspecial indicator, do not use the save features of Excel.Rather, when inside Market Master select to close theIndicator window. You will be asked if you want to savethe custom template. If so, save the indicator you havecreated using a descriptive name.

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