These patterns are extremely important and are found at market tops and bottoms. When found at the top of a market the pattern will look like a hammer, the security, or index, may open low, trade quite higher through the day, but will end up closing only slightly above the open.
When found at the bottom of a market, the security will open and trade quite low during the day, but will eventually close very close to the open.

Number of advancing issues verses declining issues within a given index. Used by technicians to determine the underlying strength of a particular move up or down (a confirming indicator). There are many different breath indicators used by technicians. Most common are the Advance/Decline line or index, Cumulative Volume Index (CVI), the McClellan Oscillator and Arms (or TRIN) Index.

The McClellan Oscillator is a momentum breadth indicator stemming from two separate Day Exponential Moving Averages (DEMA) of the NYSE net advances. Mainly used by technicians to diagnose whether the overall market is overbought or oversold.

McClellan Oscillator = (19-DEMA of (A-D)) – (39-DEMA of (A-D))

Similar to the MACD, this oscillator can be used in calculating multiple types of signals ranging from the “Zero line” cross, overbought/oversold readings, and positive/negative divergences.

Refers to the rate of acceleration of a security’s price or volume. Momentum can be upward or downward in reference to the direction of the security’s price. Momentum traders buy securities moving higher on strong volume or sell securities moving lower on strong volume. These are usually shorter-term trades.

The “MAC-D” is a momentum indicator that shows the relationship between 2 moving averages. It is calculated by subtracting the 26 day exponential moving average (EMA) from the 12 day EMA. A 9 day exponential moving average is then placed on top of the 26 and 12 EMAs for the purpose of signaling buy and sell signals. This 9 day EMA is known as the “signal line.”

How it is used:

MACD is used mainly in conjunction with Crossovers and Divergences. A crossover is signaled when the MACD and Signal Line cross each other. If the MACD crosses above the Signal line this is a bullish signal, if it crosses below the signal line this is generally a bearish signal.

The Divergence is used to tell when a trend is possibly ending. If the price of the security has continued to rise, but the MACD does not reflect this, then it is possible that the price will come down.

The “Zero” line is used as a reference to gauge short-term momentum. For example, when the MACD crosses over zero, the short-term average is increasing relative to the long-term average indicating bullish short-term momentum.