All Oscillators Powerpoint
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Oscillators :
1- extremely useful in non-trending markets where prices fluctuate in a horizontal price band or trading range
2- Oscillators alert the trader to short term market extremes ( overbought or oversold )
3- Oscillators warn trader that a trend is losing momentum 4- Oscillators can signal that a trend may be nearing completion by
displaying divergences 5- The crossing of the midpoint line can give trading signals 6- VERY IMPORTANT : the basic trend analysis is still the overriding
consideration , oscillator analysis should NOT be used as an excuse to trade against the prevailing market trend
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Momentum :
1- measures the velocity of price changes ( rocket example ) 2- formula of momentum is : M = V - V^x where V is the latest closing
price & V^x is the closing price of x days ago 3- momentum oscillator fluctuates around a zero line , reading too far
above the zero line are overbought while values too far below the line are oversold
4- a momentum shorter time period produces more sensitive line with more oscillations & vice versa
5- the Momentum line leads the price action , LEADING indicator 6- the momentum chart has a zero line , a crossing above the zero line
would be a buy signal , crossing below is a sell signal 7- VERY IMPORTANT : the basic trend analysis is still the overriding
consideration , oscillator analysis should NOT be used as an excuse to trade against the prevailing market trend
8- one problem with the momentum line , the absence of a fixed upper & lower boundary
Note: In case of a 10 days Momentum, if the gains that achieved by the latest closes are the same as the gains 10 days earlier , while prices may still advancing, the rate of ascent or the velocity has leveled off , so the momentum line is going to flatten out, BUT when momentum line begins to drop toward the zero line , the uptrend prices is still in force but in decelerating rate .. the uptrend is losing momentum . Price 120 127 132 134 134 131 126 120 122 128
MI 7 5 2 0 -3 -4 -6 2 6
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Rate of change ( ROC ) :
1- to measure the rate of change , a ratio is constructed of the most recent closing price to a price a certain number of days in the past ( divided by )
ROC = 100 ( V / Vx ) Where V = the latest closing price Vx = closing price of x days ago 2- ROC is from the momentum family and it’s providing the same
information
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Commodity channel index ( CCI ) : Developed by Donald Lambert
the Commodity Channel Index (CCI) was designed to trade in commodities CCI compares the current price with a moving average over a selected time
span ( usually 20 )
CCI can be used to identify overbought and oversold levels. A security would be deemed oversold when the CCI dips below -100 and overbought when it exceeds +100. From oversold levels, a buy signal might be given when the CCI moves back above -100. From overbought levels, a sell signal might be given when the CCI moved back below +100.
As with most oscillators, divergences can also be applied to increase signals
Trend line breaks can be used to generate signals. Trend lines can be drawn connecting the peaks and troughs.
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Relative Strength Index ( RSI ) :
1- Developed by Welles Wilder 2- Provide a constant range ( boundaries ) that tell the trader when the
prices are overbought or oversold 3- Wilder originally employed 14 days period for RSI, 14 weeks for weekly
charts ( but also 9 , 7 , 5 days are well known ) 4- The shorter time period the more sensitive the oscillator becomes & the
wider its amplitude 5- RSI is plotted on a vertical scale from 0 to 100 , movement above 70 is
considered overbought , under 30 is considered oversold 6- A top/bottom failure swing occurs when RSI line reach a top/bottom &
fails to exceed the previous top/bottom 7- RSI divergence gives trader an early warning of a reversal move
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Stochastic ( K%D ):
1- Developed by George C. Lane in the late 1950s 2- the Stochastic Oscillator is a momentum indicator that shows the
location of the current close relative to the high/low range over a set number of periods.
3- Closing levels that are consistently near the top of the range indicate accumulation (buying pressure) and those near the bottom of the range indicate distribution (selling pressure).
4- Calculation :
%K tells us that the close (115.38) was in the 57th percentile of the high/low range, or just above the mid-point. Because %K is a percentage or ratio, it will fluctuate between 0 and 100. A 3-day simple moving average of %K is usually plotted alongside to act as a signal or trigger line, called %D.
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Larry Williams %R :
1- Developed by Larry Williams, Williams %R is a momentum indicator that works much like the Stochastic Oscillator. It is especially popular for measuring overbought and oversold levels.
2- The scale ranges from 0 to -100 with readings from 0 to -20 considered overbought, and readings from -80 to -100 considered oversold.
3- shows the relationship of the close relative to the high-low range over a
set period of time
4- gives all signals as same as stochastic
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Moving Average Convergence / Divergence ( MACD ) :
1- Developed by Gerald Appel 2- Moving Average Convergence/Divergence (MACD) is one of the
simplest and most reliable indicators available. MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics.
3- These lagging indicators are turned into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits.
4- The faster line ( called the MACD line ) is the difference between two Exponential Moving Averages of closing prices ( usually 12 & 26 days or weeks )
5- The slower line ( called the signal line ) is usually a 9 period exponential average of MACD line
6- Note : you’ll see two lines on your computer screen although three lines are actually used in its calculation
7- Buy / Sell signals when the two line cross : A- Buy signal : when MACD line cross above the slower signal line B- Sell signal : when MACD line cross below the slower signal line 8- An overbought condition is present when the lines are too far above the
zero line, oversold condition is present when the lines are far below the zero line
9- Divergence : A- Bearish divergence : when the MACD line are well above the zero
line ( overbought area ) and start to weaken while prices continue to move higher
B- Bullish divergence : when the MACD line are well below the zero line ( oversold area ) and start to move up ahead the price line, that’s often an early sign of market bottom
10- MACD Histogram : Plots the difference between the two MACD lines, Signals are given on the zero line crossing
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