Firstly, your success with this system is not dependent on your complete understanding of what all of these pointers are.
As a matter of fact, you will get more done with much ease by simply having a surface understanding of things. So regardless of what you call the pointers or indicators, it doesn’t make any difference. The vital thing is to know where every pointer is going.
Some of you prefer to make things a lot more complicated than they need to be because it makes things sound so technical. So to satisfy this innate need to sound very smart, I will feed your curiosity and quickly go over what these pointers are.
A. Moving Averages
According to investorwords.com, a moving average is the mean price of a security over a period of time which is usually any of 20, 30, 50, 100 or 200 days. This average is used to identify trends in price by leveling out huge fluctuations. New numbers are included in the average and the oldest numbers are removed. This is where it gets the name moving averages.
This moving average is a very common variable in statistical analysis. It can be used to monitor daily, weekly and monthly patterns. There are various types of moving averages and they all depend on their mode of construction. We have the simple moving averages, exponential moving averages and the weighted moving averages. They are usually calculated with closing prices.
The time frames are also dynamic. A shorter MA such as the 5 day MA will have a higher sensitivity and it will spot changes a lot faster. This makes them more volatile and a longer MA like the 200 day MA will not be as quick but it will be great at spotting bigger trends.
The Catman system utilizes two fast moving averages, the 5 MA and the 15 MA.
According to investorwords.com, stochastics is
“a model based on the belief that as prices increase (or decrease), closing prices tend to accumulate ever more closely to the highs (or lows) for a given period,”
This pointer is made up of two lines, the %D and the %K.
the %K will compare the final closing price to the range that has been traded over a period of time. The number of periods used in the pointer is not fixed. The %D is a signal line that is arrived at by smoothing %K. the main formula used for smoothing the %D is a 3 period simple moving average.
For the Catman System, the %K and the %D are fixed at P = 14.
C. On-Balance Volume
This is also known as OBV and it is an indicator that can be used to identify when a stock is being accumulated or spread out. This is achieved by comparing the volume to price over time. Volume is included in the indicator if the final closing price goes up and it is removed if the price goes down. There is no modification made if the closing price remains the same.
A rising OBV tells us there is an upward trend and warns of an upward breakout while a falling OBV tells us there is a downward trend and warns of a breakdown. The OBV can also lead the price so a dynamic OBV while the price is still going down can also be a sign of a bottom.