Technical Analysis: Oscillators by NSFX
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Transcript of Technical Analysis: Oscillators by NSFX
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Technical Analysis - Standard Oscillators
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Agenda
• What are oscillators?
• Relative Strength Index (RSI)
• Moving Average Convergence/Divergence (MACD)
• Stochastics
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What are oscillators?
• A mathematical tool to assess market moves
• Compared to Moving Averages and other indicators, which are applied on the chart, the oscillators are separate and give an index to measure market conditions from an overbought/oversold, divergence/convergence perspective
• Good for identifying potential reversals and have historically proven most successful when markets are trading sideways, without a clear trend.
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Relative Strength Index (RSI)
• Developed by Welles Wilder and first published in 1978
• The RSI is a momentum indicator which compares the average price change of the advancing periods with the average change of the declining periods.
• Useful in both short and long term analysis, but standard criteria are set different
• Standard formula:
𝑅𝑆𝐼 = 100 −100
1+𝑅𝑆, 𝑤ℎ𝑒𝑟𝑒
𝑅𝑆 =𝐴𝑣𝑔 𝑜𝑓 𝑛 𝑝𝑒𝑟𝑖𝑜𝑑𝑠′𝑢𝑝 𝑐𝑙𝑜𝑠𝑒𝑠
𝐴𝑣𝑔 𝑜𝑓 𝑛 𝑝𝑒𝑟𝑖𝑜𝑑𝑠′𝑑𝑜𝑤𝑛 𝑐𝑙𝑜𝑠𝑒𝑠
This will give us an index ranging from 0-100, making it possible to assess possible divergence or if an instrument is oversold/overbought
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Relative Strength Index (RSI)
1. Oversold – market corrects higher
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Relative Strength Index (RSI) 1. Oversold – market corrects higher 2. Overbought – market corrects lower
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Relative Strength Index (RSI)
1. Oversold – market corrects higher 2. Overbought – market corrects lower 3. Divergence – price moves opposite of
indicator
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MACD
• Developed in late 1970s by Gerald Appel
• Built on several exponential moving averages and applied for both trend-following and gauging of momentum.
• Compared to the RSI, the MACD fluctuates around zero, not indexed and is not as useful as the RSI as identifying overbought/oversold levels.
• Consisting of a so-called MACD-line and a signal line (and a histogram showing the difference between the two):
Standard Parameters: MACD-line: (12-day EMA – 26-day EMA)
Signal Line: 9-day EMA of MACD Line
MACD Histogram: MACD Line – Signal Line
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MACD
Signal Line
MACD Line
MACD Histogram (MACD Line – Signal Line) 9 NSFX Trading Desk
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MACD
1. Line crossovers
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MACD
1. Line crossovers 2. Bullish Divergence (convergence)
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Stochastic Slow
• Developed in the late 1950s by George C. Lane
• Shows location of the close relative to a high-low range over an interval and follows the momentum of the price action.
• Good for finding reversal setups as well as overbought/oversold situations.
Formula: %𝐾 =𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐶𝑙𝑜𝑠𝑒 −𝐿𝑜𝑤𝑒𝑠𝑡 𝐿𝑜𝑤(𝑛)
𝐻𝑖𝑔ℎ𝑒𝑠𝑡 𝐻𝑖𝑔ℎ 𝑛 −𝐿𝑜𝑤𝑒𝑠𝑡 𝐿𝑜𝑤 (𝑛)∗ 100
%𝐷 = 3𝑑𝑎𝑦 𝑆𝑀𝐴 𝑜𝑓 %𝐾
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Stochastic Slow
%K
%D
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Stochastic Slow
1. Overbought/Oversold
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Stochastic Slow
1. Overbought/Oversold 2. Crossovers
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Stochastic Slow
1. Overbought/Oversold 2. Crossovers 3. Convergence/Divergence
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Example - MACD, RSI & STOCHS Combined on the S&P Daily
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