trader-hand-skill

What this skill does

# Trading Expert Knowledge

## Reference Knowledge

## 1. Technical Analysis Indicators Reference

### RSI (Relative Strength Index)
```
Formula: RSI = 100 - (100 / (1 + RS))
Where:  RS = Average Gain / Average Loss over N periods (default N = 14)

Step-by-step calculation:
  1. For each period, compute change = Close(t) - Close(t-1)
  2. Gains = max(change, 0), Losses = abs(min(change, 0))
  3. First average: simple mean of first 14 gains/losses
  4. Subsequent: AvgGain = (PrevAvgGain * 13 + CurrentGain) / 14  (Wilder smoothing)
  5. RS = AvgGain / AvgLoss
  6. RSI = 100 - (100 / (1 + RS))

Worked example (14-period):
  Avg Gain over 14 periods = 1.02
  Avg Loss over 14 periods = 0.68
  RS = 1.02 / 0.68 = 1.50
  RSI = 100 - (100 / (1 + 1.50)) = 100 - 40 = 60.0
```

**Interpretation:**
- RSI < 30: Oversold territory (potential buy signal)
- RSI > 70: Overbought territory (potential sell signal)
- RSI = 50: Neutral — price momentum balanced

**Advanced RSI Signals:**
| Signal | Description | Strength |
|--------|-------------|----------|
| Bearish divergence | Price makes new high, RSI makes lower high | Strong reversal warning |
| Bullish divergence | Price makes new low, RSI makes higher low | Strong reversal warning |
| Bullish failure swing | RSI drops below 30, bounces, pulls back above 30, breaks prior RSI high | Very strong buy |
| Bearish failure swing | RSI rises above 70, drops, bounces below 70, breaks prior RSI low | Very strong sell |
| Range shift | RSI oscillates 40-80 in uptrend, 20-60 in downtrend | Trend confirmation |

**Best practices:** Never use RSI as a sole signal. Combine with trend direction (moving averages) and volume. In strong trends, RSI can stay overbought/oversold for extended periods.

---

### MACD (Moving Average Convergence Divergence)
```
MACD Line   = EMA(12) - EMA(26)
Signal Line = EMA(9) of MACD Line
Histogram   = MACD Line - Signal Line

EMA formula: EMA(t) = Price(t) * k + EMA(t-1) * (1 - k)
Where: k = 2 / (N + 1)
  For EMA(12): k = 2/13 = 0.1538
  For EMA(26): k = 2/27 = 0.0741

Worked example:
  EMA(12) = 155.20
  EMA(26) = 152.80
  MACD Line = 155.20 - 152.80 = 2.40
  Previous Signal Line = 1.80
  Signal Line = 2.40 * (2/10) + 1.80 * (8/10) = 0.48 + 1.44 = 1.92
  Histogram = 2.40 - 1.92 = 0.48 (positive = bullish momentum increasing)
```

**Interpretation:**
| Signal | Condition | Strength |
|--------|-----------|----------|
| Bullish crossover | MACD crosses above Signal Line | Moderate buy |
| Bearish crossover | MACD crosses below Signal Line | Moderate sell |
| Zero-line bullish cross | MACD crosses above zero | Trend change to bullish |
| Zero-line bearish cross | MACD crosses below zero | Trend change to bearish |
| Histogram expansion | Bars growing taller | Momentum accelerating |
| Histogram contraction | Bars shrinking | Momentum weakening, reversal may come |
| Bullish divergence | Price new low, MACD higher low | Strong reversal signal |
| Bearish divergence | Price new high, MACD lower high | Strong reversal signal |

---

### Bollinger Bands
```
Middle Band = SMA(20)
Upper Band  = SMA(20) + 2 * StdDev(20)
Lower Band  = SMA(20) - 2 * StdDev(20)
Bandwidth   = (Upper - Lower) / Middle
%B          = (Price - Lower) / (Upper - Lower)

Worked example:
  SMA(20) = 150.00
  StdDev(20) = 3.50
  Upper = 150.00 + 2 * 3.50 = 157.00
  Lower = 150.00 - 2 * 3.50 = 143.00
  Bandwidth = (157.00 - 143.00) / 150.00 = 0.0933 (9.33%)
  Current price = 155.00
  %B = (155.00 - 143.00) / (157.00 - 143.00) = 12/14 = 0.857
  Interpretation: Price is 85.7% of the way from lower to upper band — near upper band
```

**Key Bollinger Band Signals:**
| Signal | Condition | Meaning |
|--------|-----------|---------|
| Squeeze | Bandwidth at 6-month low | Volatility contraction, big move imminent |
| Squeeze breakout up | Price breaks above upper band after squeeze | Strong bullish breakout |
| Squeeze breakout down | Price breaks below lower band after squeeze | Strong bearish breakout |
| Walking the upper band | Price hugs upper band with middle band rising | Strong uptrend — do NOT short |
| Walking the lower band | Price hugs lower band with middle band falling | Strong downtrend — do NOT buy |
| Mean reversion touch | Price touches outer band, %B reverses | Potential reversion to middle band |
| W-bottom | Price hits lower band twice, second low has higher %B | Bullish reversal pattern |
| M-top | Price hits upper band twice, second high has lower %B | Bearish reversal pattern |

---

### VWAP (Volume Weighted Average Price)
```
VWAP = Cumulative(Typical Price * Volume) / Cumulative(Volume)
Typical Price = (High + Low + Close) / 3

Worked example (first 3 bars of the day):
  Bar 1: TP = (101+99+100)/3 = 100.00, Vol = 10,000 -> cumTP*V = 1,000,000
  Bar 2: TP = (102+100+101)/3 = 101.00, Vol = 15,000 -> cumTP*V = 2,515,000
  Bar 3: TP = (103+101+102)/3 = 102.00, Vol = 8,000  -> cumTP*V = 3,331,000
  Cumulative Volume = 33,000
  VWAP = 3,331,000 / 33,000 = 100.94
```

**Usage:**
- **Institutional benchmark**: If price > VWAP, buyers dominate; price < VWAP, sellers dominate
- **Intraday S/R**: VWAP acts as dynamic support in uptrends, resistance in downtrends
- **Entry filter**: Buy only when price pulls back to VWAP (not chasing extended moves)
- **Standard deviations**: VWAP +1/-1 and +2/-2 StdDev bands serve as profit targets
- **Resets daily**: Do NOT carry VWAP across sessions — it is an intraday metric

---

### Moving Averages
```
SMA(N) = (Close_1 + Close_2 + ... + Close_N) / N
EMA(N) = Close * (2/(N+1)) + PrevEMA * (1 - 2/(N+1))

Key Moving Averages:
  EMA(9)   — very short-term trend (scalping, day trading)
  EMA(20)  — short-term trend
  EMA(50)  — medium-term trend
  SMA(100) — intermediate trend
  SMA(200) — long-term trend (institutional benchmark)
```

**Critical Cross Signals:**
| Cross | Name | Meaning | Reliability |
|-------|------|---------|-------------|
| 50 MA > 200 MA | Golden Cross | Bullish trend reversal | High (lag ~2 weeks) |
| 50 MA < 200 MA | Death Cross | Bearish trend reversal | High (lag ~2 weeks) |
| 9 EMA > 21 EMA | Fast bullish cross | Short-term momentum shift | Moderate |
| Price > 200 SMA | Above long-term trend | Bullish regime | Very High |
| Price < 200 SMA | Below long-term trend | Bearish regime | Very High |

**Moving Average Ribbon** (20/50/100/200 MAs all fanning out): Indicates a very strong trend. When all are stacked in order (20 > 50 > 100 > 200 for uptrend), the trend is highly reliable.

---

### ATR (Average True Range)
```
True Range = max(High - Low, |High - PrevClose|, |Low - PrevClose|)
ATR(14) = Simple or Wilder Moving Average of True Range over 14 periods

Worked example:
  Today: High = 105, Low = 101, PrevClose = 102
  TR = max(105-101, |105-102|, |101-102|) = max(4, 3, 1) = 4
  If ATR(14) was 3.50 yesterday:
  ATR(14) = (3.50 * 13 + 4) / 14 = (45.50 + 4) / 14 = 3.536
```

**Practical Applications:**
| Use Case | Formula | Example |
|----------|---------|---------|
| Stop-loss placement | Entry - 2 * ATR | Entry $100, ATR $2.50 -> Stop at $95.00 |
| Take-profit target | Entry + 3 * ATR | Entry $100, ATR $2.50 -> Target $107.50 |
| Position sizing | Risk$ / ATR | $200 risk / $2.50 ATR = 80 shares |
| Volatility filter | ATR > threshold | Only trade when ATR > daily average (avoid dead markets) |
| Trailing stop | Highest close - 3 * ATR | Locks in profit as price rises |

---

### Volume Analysis
```
OBV (On-Balance Volume):
  If Close > PrevClose: OBV = PrevOBV + Volume
  If Close < PrevClose: OBV = PrevOBV - Volume
  If Close = PrevClose: OBV = PrevOBV

Volume Rate of Change: VROC = (Volume - Volume_N_ago) / Volume_N_ago * 100
```

**Volume Confirmation Rules:**
| Price Action | Volume | Interpretation |
|-------------|--------|----------------|
| Price up | Volume up | Strong bullish — legitimate move |
| Price up | Volume down | Weak rally — likely to reverse |
| Price down | Volume up | Strong bearish — capitulation or breakdown |
| Price down | Volume do