Trading with Oscillators

 

Oscillators are bounded-range technical indicators that help traders determine whether an asset is trading in overbought or oversold conditions. These tools are especially valuable in non-trending (ranging) markets.

Oscillators are useful for:

• Identifying overbought/oversold conditions

• Evaluating trend momentum

• Spotting trend reversals or continuations

• Generating trading signals

“When a long-term trend loses its momentum, short-term volatility tends to rise. It is easy to see why that should be so: the trend-following crowd is disoriented.” — George Soros

This tutorial provides insights and tips for trading with the following oscillators:

• Moving Average Convergence Divergence (MACD)
• Relative Strength Index (RSI) and StochRSI
• RSI PRECISION v.3 (Multi-Signal Machine)
• RSI PRECISION v.2 (MACD & SMA)
• RSI PRECISION
• Williams %R
• Stochastic Oscillator
• Momentum Oscillator
• Awesome Oscillator (AO)
• DeMarker Indicator
• Average Directional Movement Index (ADX)
• Gator Oscillator (GO)
• Commodity Channel Index (CCI)

 

(1) RSI PRECISION

◙ Utility: Identifying Overbought/Oversold Market Levels

◙ Standard Settings: 14 or 21 Periods

Developed by analyst Giorgos Protonotarios, RSI PRECISION is an enhanced version of the classic RSI, available free on TradingView. It incorporates price momentum and volatility for more precise signals.

» RSI PRECISION | » RSI PRECISION v.3 (Multi-Signal Machine)

(2) Relative Strength Index (RSI)

◙ Utility: Identifying Overbought/Oversold Market Levels

◙ Standard Settings: 14 Periods

The Relative Strength Index, or RSI, is a momentum oscillator that measures the velocity and magnitude of directional price movements.

» Relative Strength Index (RSI)

(3) Moving Average Convergence Divergence (MACD)

◙ Utility: Evaluating the Trend / Trading Signals

◙ Standard Settings: 12 periods Fast, 26 periods Slow, and 9 periods SMA (12,26,9)

The Moving Average Convergence Divergence, or MACD, helps identify the strength of any trend and provides buy and sell signals based on the MACD line and MACD divergences.

» More on MACD

(4) %R Larry Williams

◙ Utility: Identifying Overbought/Oversold Market Levels

◙ Standard Settings: 14 Periods

Williams %R is another momentum oscillator, similar to RSI. It is widely used for identifying overbought/oversold market levels, evaluating trend momentum, and detecting momentum failures.

»Williams %R

(5) Stochastic Oscillator

◙ Utility: Evaluating the Trend

◙ Standard Settings: 14 Periods (14,3,3)

The Stochastic Oscillator, developed by George Lane, is a momentum indicator that measures both the speed and momentum of price movements.

» More on Stochastic

(6) Momentum Oscillator

◙ Utility: Identifying the Trend

◙ Standard Settings: 21, 63, 125, 250 Periods

The Momentum Oscillator measures the difference between the latest price and the price from T periods ago.

» Momentum

(7) Awesome Oscillator (AO)

◙ Utility: Identifying Momentum

◙ Standard Settings: 5 and 34 Periods SMAs

The Awesome Oscillator compares recent market momentum to the momentum of a larger set of previous periods. It uses two Simple Moving Averages of median prices.

» More on Awesome

(8) DeMarker Indicator

◙ Utility: Evaluating the Trend / Determines Timing

◙ Standard Settings: 14 Periods

The DeMarker Indicator identifies potential areas of trend formation or price exhaustion before they occur. It focuses not only on market direction but also on optimal timing.

» More on DeMarker

 

(9) Average Directional Movement Index (ADX)

◙ Utility: Evaluating the Trend

◙ Standard Settings: 14 Periods

The Average Directional Movement Index (ADX) identifies whether a market is trending or ranging and provides a structure for generating trading signals.

» ADX System

(10) Gator Oscillator (GO)

◙ Utility: Identifying Strong Directional Action

◙ Standard Settings: 13 Periods (13,8,5)

The Gator Oscillator is based on the Alligator Oscillator, developed by Bill Williams. Bars above zero show the absolute difference between the long-term and medium-term moving averages. Bars below zero show the difference between the medium-term and short-term moving averages.

» Gator Oscillator

(11) Commodity Channel Index (CCI)

◙ Utility: Evaluating Overbought / Oversold Market Levels

◙ Standard Settings: 20 Periods

The Commodity Channel Index, or CCI, is an oscillator used to identify overbought or oversold levels. It helps evaluate the current market condition of a financial asset.

» More on CCI

 

■ Trading with Oscillators

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