Guide To Excel For Finance: Technical Indicators
Microsoft offers sophisticated statistical and engineering analysis capabilities with its Analysis ToolPak. Stock market charts and related technical indicators can be manipulated using this service, but there aren't really any specific technical analysis features directly in the Excel application.
However, there are a number of third-party applications that can be purchased and used as "add-ins" to supplement Excel's statistical package. Additionally, a number of technical indicators can be created using basic charts and formulas in Excel. Below is an overview of a number of primary technical indicators, and how they can be created in Excel.
Pivot points (PP) are closely related to support and resistance levels, which are covered in more detail below. In its most simple form, a pivot point is calculated by taking the average of the high, low, and closing price for a stock or financial asset (below is an example in Excel.) Trading levels can be easily entered into Excel, or through data downloads from Yahoo! Finance, as detailed in the previous section. This pivot point forms the basis for support and resistance levels, as detailed next.
Support and Resistance
Support and resistance levels are used to indicate the points at which a stock might not fall below or trade above, without a certain amount of difficulty. At these levels, a stock may see some support, or might break right through it on its way to either new lows or highs.
Using pivot points, the first resistance level is calculated by doubling the pivot point, then subtracting out the low point of the trading interval used. The first support level also doubles the pivot point value, but subtracts out the high trading price.
A second level of resistance can be calculated by adding the difference of the high and low trades to the pivot point. The second support level subtracts the difference of the high and low trades from the pivot point.
The third level of resistance and support is calculated as follows:
|Third resistance = High + 2(PP - Low)|
|Third support = Low - 2(High - PP)|
In Excel, Pivot Table reports help summarize, analyze, explore and present basic summary data. As such, it is customizable to analyzing technical indicators in financial markets. According to Excel, here is an overview of what they can help a user do:
- Query large amounts of data in many user-friendly ways.
- Subtotal and aggregate numeric data, summarize data by categories and subcategories and create custom calculations and formulas.
- Expand and collapse levels of data to focus your results and drill down to details from the summary data for areas of interest to you.
- Move rows to columns or columns to rows (or "pivoting") to see different summaries of the source data.
- Filter, sort, group and conditionally format the most useful and interesting subset of data to enable you to focus on the information that you want.
- Present concise, attractive and annotated online or printed reports.
A Bollinger Band is a band plotted two standard deviations away from a simple moving average. Below is a chart of Bollinger Bands:
A blog providing an overview of technical analysis for beginners recently provided an overview of how a Bollinger Band can be created in Excel. Below is an overview of the primary inputs:
Column , values and formulas to create:
A = Company Name/date
B = Open
C = High
D = Low
E = LTP/close
F = Volumes
A moving average is used to track trends in the way a stock or financial asset trades. It is intended to smooth out daily fluctuations and indicate if the asset might be trading above, at or below certain trends over time.
With existing data that includes a date and daily trading levels, a moving average can be calculated in Excel. The "AVERAGE" function in Excel will be used to calculate moving averages for certain intervals, such as a 50-day or 200-day moving average. Then, it can be determined how the asset is currently trading in relation to this moving average.
Relative Strength Index
The relative strength index, or RSI, can be calculated in Excel via a straightforward cell calculation. The RSI is a technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset.It is calculated using the following formula:
RSI = 100 - 100/(1 + RS*)
RS is equal to the Average of x days' up closes, divided by the Average of x days' down closes. Guide To Excel For Finance: Valuation Methods
The portion of a company's profit allocated to each outstanding ...
A performance measure used to evaluate the efficiency of an investment ...
A form of technical analysis that looks at the range between ...
A momentum indicator that uses a stock’s price and volume to ...
A momentum indicator that uses volume flow to predict changes ...
A technical indicator that relies on changes in a security’s ...
Understand the basics of the gross profit margin including its interpretation as a measure of profitability and its calculation ...
Learn about the price/earnings to growth (PEG) ratio and understand what investors and market analysts consider a good ratio ...
Read about how to identify and then build a trading strategy around a rising three methods pattern on a Japanese candlestick ...
Discover the advantages of using RSI as a financial tool. One benefit is that it helps traders make quick market entries ...