Summary: Popular Chart Indicators

Babypips Elementary - Grade 5

What is the primary function of Bollinger Bands?

To measure market volatility and act as dynamic support and resistance levels.

How does the 'Bollinger Bounce' strategy work?

It assumes price returns to the middle. Buy at the lower band, sell at the upper band.

In which market condition is the Bollinger Bounce best used?

Ranging markets.

What does a 'Bollinger Squeeze' indicate?

The market is very quiet/low volatility, indicating a breakout is imminent.

What is the main drawback of the MACD indicator?

It lags because it uses averages of other moving averages.

What do the lines in the MACD represent?

Moving averages of other moving averages (NOT moving averages of the price).

How do you interpret Parabolic SAR dots?

Dots BELOW candles = BUY (Bullish); Dots ABOVE candles = SELL (Bearish).

Which market condition is best for using Parabolic SAR?

Trending markets with long rallies or downturns.

What are the Overbought and Oversold levels for Stochastic?

Overbought: Above 80; Oversold: Below 20.

What are the Overbought and Oversold levels for RSI?

Overbought: Above 70; Oversold: Below 30.

How is the '50' level used in RSI?

To confirm trends. Above 50 signals an uptrend; below 50 signals a downtrend.

What does the ADX indicator measure?

The potential strength of a trend (not direction).

What does an ADX reading above 50 indicate?

A strong trend.

What does an ADX reading below 20 indicate?

A weak trend.

What does 'Ichimoku Kinko Hyo' translate to?

A glance at a chart in equilibrium.

In Ichimoku, how does the Senkou Span act if the price is ABOVE it?

The top line is the 1st support, and the bottom line is the 2nd support.

In Ichimoku, what does a horizontal Tenkan Sen (Red line) indicate?

The market is ranging.

What signal does the Chikou Span (Lagging line) give when it crosses price from bottom-up?

A Buy signal