Trading with Oscillators
Oscillators are tools of technical analysis that are bound within a range. This predefined range helps traders to identify if the price of a financial asset is found in overbought/oversold levels.
Oscillators can prove a useful tool for:
- Identifying Overbought/Oversold Market Levels
- Evaluating the Momentum of the Trend
- Spotting Trend Reversal/Continuation
- Generating Trade Signals
But how easy it is to spot a failure in the momentum of the trend?
“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 includes information and tips when 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
Created by the financial analyst, Giorgos Protonotarios, RSI PRECISION is an advanced version of the classic RSI that works on TradingView and it is free. The oscillator enhances RSI with price momentum and periodic volatility.
» 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 measuring the velocity and magnitude of a directional price movement.
» 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 can identify the strength of any trend and to provide buy and sell trading signals based on the MACD line or the MACD divergences.
(4) %R Larry Williams
◙ Utility: Identifying Overbought/Oversold Market Levels
◙ Standard Settings: 14 Periods
Williams %R is another momentum oscillator as RSI. Williams %R is widely used for identifying overbought/oversold market levels but also for evaluating the momentum of the trend and for detecting momentum failures.
(5) Stochastic Oscillator
◙ Utility: Evaluating the Trend
◙ Standard Settings: 14 Periods (14,3,3)
The Stochastic Oscillator is a momentum indicator developed by George Lane. The Stochastic Oscillator can measure the momentum and the speed of a price.
(6) Momentum Oscillator
◙ Utility: Identifying the Trend
◙ Standard Settings: 21, 63, 125, 250 Periods
The Momentum oscillator measures the difference between the last price and the price of T periods ago.
» Momentum
(7) Awesome Oscillator (AO)
◙ Utility: Identifying Momentum
◙ Standard Settings: 5 and 34 Periods SMAs
The Awesome Oscillator shows the recent market momentum compared to the momentum of a larger number of previous periods. The Awesome Oscillator is an indicator that uses two Simple Moving Averages of median prices.
(8) DeMarker Indicator
◙ Utility: Evaluating the Trend / Determines Timing
◙ Standard Settings: 14 Periods
DeMarker indicator can evaluate areas of likely price trend formation or price exhaustion, before their occurrence. The DeMarker Indicator is not focused solely on market direction but also the perfect timing.
(9) Average Directional Movement Index (ADX)
◙ Utility: Evaluating the Trend
◙ Standard Settings: 14 Periods
The Average Directional Movement Index (ADX) identifies trending/ranging markets and provides a framework for generating trading signals.
(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 which was developed by Bill Williams. The bars found above zero represent the absolute difference between the long-term moving average and the medium-term moving average. The bars below zero represent the absolute difference between the medium-term moving average and the short-term moving average.
(11) Commodity Channel Index (CCI)
◙ Utility: Evaluating Overbought / Oversold Market Levels
◙ Standard Settings: 20 Periods
The Commodity Channel Index or CCI is an oscillator that aims to identify overbought/oversold market levels. The oscillator can evaluate the current market conditions of a financial asset.
■ Trading with Oscillators
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