The Study Of Stock Market Through Technical Analysis

Lesson -> A Supportive note

Understanding the Average True Range Band

ATR bands are an extension to the ATR concept. It is a way to draw a line around the stock price in order to determine if it is trending in a certain direction or behaving "normally". The ATR band calculates both the upper and the lower bands.

What should you know about?

  1. Around the stock price,the upper and lower envelope is calculated and ploted by the ATR band
  2. A moving average of the stock market price is used to calculate the starting point.
  3. Then  to the moving average value the ATR value is added. This creates the upper envelope.
  4. The ATR value is subtracted from the moving average value to form the lower envelope.
  5. The expectation is that the stock will continue moving in the same direction if it reaches the lower or upper envelop. If the stock price is above the upper envelope, it is expected that the stock will move higher.
  6. The ATR bands can be used as an alternative to Bollinger Bands trading.

On KiteYou will be asked for some inputs when you load the ATR Band from studies.
The MA time frame is called period. The default value for this field is five days. This can be changed to any timeframe you choose. We recommend that you do not use the'shift" parameter. Select 'close' for the 'field" option. This means that you are plotting MA values based on closing prices. You can explore the rest of these options, which are mostly aesthetic.

What is Super trend?

Understanding the ATR is essential before understanding the supertrend indicator. The supertrend uses ATR values for its indicator values. The supertrend indicator is displayed over the price chart for the stock or index. Based on the price moment in underlying, the indicator line will change colour from green to red. Supertrends do not forecast the direction. Instead, once it has established the direction, it will direct you to take a position, and suggest that you keep the position until the trend continues.

What should you know about?

  1. The supertrend indicator looks like an alternating line of red and green when plotted.
  2. When the stock/index price is greater than the indicator value, a buy signal will be generated. The indicator colour changes to green at this point. You can also see the crossover of the price and the indicator (price greater or equal to indicator value).
  3. The trader should keep the position open until the price closes below that line. In a sense, the green lines act as a trailing stoploss in the long position.
  4. When the stock/index prices turn lower than the indicator value, a sell signal is generated. This stage is when the indicator's colour changes to red. You can also see the crossover between the price and the indicator (price less than the indicator value).
  5. You can use the sell signal to either initiate a new short or exit long. Sometimes, waiting for the sell signal can cause a loss. The trader should exercise discretion.
  6. Once the short position is established, it is advisable for the trader to keep the position open until the price closes below that line. In a sense, the trailing stoploss serves as the red line for the short position.
  7. The main purpose of Supertrend is to identify a trend. It is best to use it in a market that is trending.
  8. When compared to a regular Moving Average system, the supertrend indicator generates fewer false signal. This is why it is preferable over a Moving Average system.

You will be asked for two inputs when you choose the Supertrend indicator in the list of studies.

The ATR number of days is what refers to period. Kite default value is 7. This means that Kite will calculate the ATR value of the last 7 days. Any value can be entered.

The multiplier is a value that multiplies the ATR. Kite default values are 3 so regardless of the ATR value, it will be multiplied by 3. The multiplier is an important input to Super trend. A multiplier value that is too high will result in fewer signals being generated. The multiplier value should not be too low. If it is too high, the frequency of signals will increase and false signals can be generated. This value should be between 3 and 4.

As the price changes, the indicator's colour changes. The buy/sell signal generates green and red arrows, respectively, prompting traders to either go long or short when the stock moves.

(Volume weighted average prices )


Here's how Infy traded between 14.30 and 14.35 on 2 nd Nov 2016.

2-11-16 14:30983.55982.79832586
2-11-16 14:31983.9982.8983.33569
2-11-16 14:32983.95983983.12475
2-11-16 14:33983.75982.95982.951773
2-11-16 14:34983.45982.6982.62676
2-11-16 14:35983.25982.6982.952863


It is easy to understand the data. For example, at 14:32 2475 shares were traded. The high was 983.95, and low was 983. The minute ended at 983.1.

We now use these data to calculate the VWAP price. We use the following formula to calculate the VWAP price:

  1. The average price is the average of High, Low and Close prices.
  2. Volume Price (VP = This is the result of multiplying the average price and its volume.
  3. Total VP = This number is cumulative and is obtained by adding the current to the previous.
  4. Total volume = This is a cumulative number that is obtained by adding the current volume and the previous volume.
  5. VWAP = This number is obtained by dividing Total VP by Total Volume. This number is the average traded price, divided by total volume.

The VWAP is a dynamic no. and it changes according to the trades flow in.


  1. VWAP is an intraday indicator. You can use it to create minute charts. This will often show a jump at 9 :15 AM compared to the previous day's data. This jump is meaningless, so ignore it.
  2. VWAP is an indicator that uses averages. It lags the market price, just like all indicators that use averages.
  3. VWAP is used to gain a sense for intraday direction as well as an understanding of the efficiency of order execution.
  4. If the current price falls below VWAP, the consensus is that intraday trends are down.
  5. If the stock price is higher than VWAP, it is generally considered that the stock trending higher.
  6. The VWAP is expected to remain volatile if it lies between the high- and low levels.
  7. If you plan to shorten a stock, it will be considered an efficient fill if the stock is sold at a price higher than VWAP.
  8. If you plan to take a long position on a stock, you can be efficient if the price is lower than VWAP.

On Kite

Select VWAP from the dropdown menu and open the chart you prefer.

VWAP is only available for intraday data and cannot be applied to EOD data.

After selecting the time period (1 min, 5 minutes, 10 mins, etc. ), The engine calculates the VWAP, plots it as an overlay on the chart.
Now you can visualize the VWAP price and current market price, and plan your trades accordingly.

Average Directional Index

About:A group of directional indicator indicators, including the Minus Directional Indicator and Average Directional Index (ADX), form Welles Wilder's trading system. The Average Directional Index, (ADX), measures trend strength without considering trend direction. Indicators Plus Directional Indicator (+DI), and Minus Directional Indicator -DI complement ADX and help to define trend direction. Chartists can use both indicators together to determine the direction of trend.DirectionAndStrengthThis is the new trend.Source:

What should you know about?

  1. The ADX system consists of three components: ADX, +DI and -DI
  2. ADX is used for measuring strength/weakness, not actual direction.
  3. ADX greater than 25 means that the current trend is strong. ADX lower than 20 indicates that the trend is weak. ADX between 20-25 is considered a gray area.
  4. When ADX is 25 and the +DI crosses -DI, a buy signal is generated
  5. When ADX is greater than 25 and the –DI crosses above +DI, it is a sell signal
  6. After the buy signal has been generated, you can take the trade and set the stop loss.
  7. For buy signals, the stop loss is the lowest signal candle (for short signals) or the highest signal candle (for long signals).
  8. Trades remain valid until the stoploss is reached (even if the crossover between +DI/-DI occurs).
  9. ADX has a default lookback period of 14 days.

Load the ADX indicator using studies. Kite allows you to modify the lookback period. By default, however, it is set.
The colour of each component of the ADX system can be customized. To load the indicator, click on "create".

The default setting is to load the ADX indicator below the instrument. If you are looking for crossovers, the black line is ADX.

A brief of Alligator Indicator

A trend indicator that signals a trend's absence, formation, and direction. Bill Williams saw the behavior of the alligator as a symbol for the market's one. The resting phase has turned into the price-hunting, as the alligator wakes up to go back to sleep after it's finished feeding. The market will move stronger and more hungry the longer an alligator sleeps.Source:

What should you know about?

  1. The Alligator indicator can be seen overlaid on the chart.
  2. This indicator uses three simple moving averages: 13, 8 and 5.
  3. The Alligator’s jaw is 13-percent MA, the teeth are 8-percent MA, and the lips are 5 per cent MA.
  4. By default, 13 MA is colored blue, 8 MA coloured red and 5 MA coloured green.
  5. When the following conditions are met, a buy signal is generated.
    1. The three MAs can be separated.
    2. The price is higher than the 5MA, 8MA and 8MA respectively.
    3. If the above conditions are met, the asset will trend up.
    4. Once the uptrend has been established, the trader must identify the best entry point within the trend.
  6. When the following conditions are met, a sell signal is generated.
    1. The three MAs can be separated.
    2. The price is below the 5MA. 5MA is lower than 8MA. 8MA is lower than 13 MA.
    3. If the above conditions are met, the asset will trend down.
    4. Once the downtrend has been established, the trader must identify an entry point within the trend.
  7. Periods when the 13, 8 and 5 MA are interacted (or moving flat) is considered a "no trader" zone and traders should avoid markets.

Load the Alligator indicator in the studies. The default values of moving averages are loaded,i.e13, 5 &8.

As we can see the indicator input loads the offset values for each MA. And by the default values ,these offset values are also loaded. The number of whipsaws in an average is reduced by displacing or offsetting it. You can alter the default values of moving average and offset to any value you feel is appropriate. You can also customize each indicator's colour to suit your preferences.

This is a snapshot of the indicator as it appears when it is overlayed on the chart. The indicator is highlighted in red in two instances where the sell condition has been satisfied and the blue in one instance when it is not.

What does 'Aroon' mean?

Tushar Chande developed Aroon in 1995. It is an indicator system that tells stocks whether they are trending and how strong. "Aroon" means "Dawn's Early Light" in Sanskrit. This name was chosen by Change because the indicators indicate the start of a new trend. The Aroon indicator measures the time since price reached an x-day high/low. There are two distinct indicators: Aroon Up and Aroon Down.

The 25-day Aroon Up measures the days since a 25 day high. 25-day Aroon-Down is the number of days since the 25-day high. The Aroon indicators, which are price-relative oscillators, are very different. Aroon's unique focus on price relative to time makes it stand out. Chartists can use Aroon indicators for identifying emerging trends, defining consolidations, defining correction periods, and anticipating reversals. Source:

What should you know about?

  1. This indicator measures the time since the last high or low was made and the Time relative price takes its measures.
  2. Aroon is made up of two components - Aroon Up and Aroon down.
  3. Aroon defaults to 25 days. Aroon up is the number days since the 25th day was high, and Aroon down the number days since the 25th day low.
  4. Aroon up, and Aroon below are plotted together.
  5. Aroon up/Down has a lower bound of zero and an upper bound of 100
  6. A buy occurs when Aroon high is greater than 50 and Aroon lower is less than 30
  7. A sale is made when Aroon down exceeds 50 and Aroon upward is below 30

Here's a snapshot of the indicator after it was loaded from studies

As you can see, 14 is the default period. You are free to change it to any number you like. The 'number' of days is represented by 14 Keep in mind that if the period is 14, the Aroon measures how many days have passed since stock reached 14-day high/low.

What is 'Aroon Oscillator'?

The Aroon Oscillator extension is the Aroon indicator. The Aroon Oscillator measures differences between the Aroon upward and Aroon downward and plots them in the form an oscillator. The oscillator can swing between -100 and +100 with the '0" level being the centre point.

Below is a snapshot of the Aroon Oscillator attached to the chart

A reading of zero indicates that Aroon Up is higher than Aroon Down, which means that prices have made new highs in recent years than they did previously. Readings below zero mean that Aroon'Down is higher than Aroon/Up. This means that prices have been recording new lows in recent years, rather than new highs.

The vast majority of time, the Aroon Oscillator will be either positive or negative.  This makes the conclusion straight that when the indicator is positive,the time an price favour an uptrend and wehn its negative there is downtrend.The strenghth of the trend is defined by the positive or negative .example-a strong upside move will be reflected with =50 above surge whereas below -50 will show a strong downside move.

What is Average True Range?

The Average True Range (ATR), an indicator of volatility, was created by J. Welles Wilder. Wilder created ATR, as with many of his indicators. He considered daily prices and commodities when designing it. Commodities can be more volatile than stocks. They are subject to limit moves and gaps, which happen when a commodity makes or takes a maximum move during a session. Volatility formulas that only consider the high-low range will fail to capture volatility due to limit or gap moves. Wilder developed the Average True Range in order to capture this "missing” volatility. ATR is not a measure of volatility, but the direction of prices.

What should you know about?

  1. The Average True Range (ATR), is an extension to the True Range concept.
  2. ATR has no upper or lower bound and can therefore take any value
  3. Stock price is a factor that determines ATR. Stock 1 can have an ATR of 1.2, while Stock 2 could have an ATR of 150.
  4. ATR measures volatility but not the direction of prices.
  5. The ATR can also be used to identify stop-loss.
  6. 48 ATR means that a stock's average move is 48 points. To estimate the range for the day, you can add this number to the current day’s range.Let's take an example-the stock will trade between 1320=48 =1368 and 1320-48=1272 if the stock proce is 1320.
  7. If the ATR for tomorrow drops to 40, it indicates that volatility is decreasing and the expected range is decreasing.
  8. To identify volatility-based SLs while trading, it is best to use the ATR. If you trade the stock at 1325 and your SL is at least 1272, the ATR should be 48.
  9. If you initiated a short trade at 1320, your stoploss should be at minimum 1368.
  10. These SL levels may not be within your risk-to-reward appetite. It is best to avoid trades.

As you can see the default value for ATR is 14. This means that the system calculates ATR over the last 14 days. You can alter this value as you wish. This is the snapshot
To determine if the stoploss level is appropriate, make sure to check the ATR value the next time you place one. You might also be interested in learning more about volatility and how it is applied (including volatility-based SL).