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Home » Indicator School » Oscillators
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Indicator School - Oscillators

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The leading indicators

Oscillators are leading indicators as they lead a price move. They move above and below a centerline (center oscillators) or banded (banded oscillators) between two extreme values. The banded oscillators are designed for discovering short-term overbought or oversold conditions. As the value of the oscillator approaches the upper extreme band the stock market is deemed to be overbought, and as it approaches the lower extreme it is deemed to be oversold.

 

Center oscillators like the Moving Average Convergence Divergence (MACD) fluctuated above and below a predefined line, measuring the strengths/momentum of the underlying security. Centered oscillators are used to identify the strength of the underlying security or the direction of momentum behind a move.

 

 

Examples of Different Oscillators Offered by WallStreetCourier

 

Advance-/Decline 20 Days Momentum

This center oscillator measures the advancing stocks and declining stocks on a 20 days basis. This indicator is a leading indicator as it leads the price move. The bigger the difference between the current price and the price 20 days ago, the higher the value of this oscillator. When the indicator is above 0, the percentage price change is positive (bullish).

 

When the indicator is below 0, the percentage price change is negative (bearish). This indicator is especially reliable when a new high or low of the market is not confirmed by momentum.

 
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Indicator School - Advance-/Decline 20 Days Momentum
 
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WallStreetCourier Index

The Global Futures Trend Indicator calculates the amount of stocks listed on NYSE which are reaching daily new highs or daily new lows. As long as the gauge of this index stays above the 60% level there is a solid bullish trend in progress.

 
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Indicator School - WallStreetCourier Index
 
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Advance-/Decline Ratio Daily

The Advance-/Decline Ratio Daily is calculated by dividing the number of advancing issues by the number of declining issues using daily NYSE data. It works very well as an overbought/oversold indicator. A reading greater than 1.6 would be considered overbought and a reading below 0.8 would be considered oversold.

 
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Indicator School - Advance-/Decline Ratio Daily
 
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The Advantage and the Complicacy of Oscillators

Oscillators are designed to lead prices and they work the best if the market is in a trading range or if the trend of the market is not confirmed by breadth. It is expensive to trade an oscillator signal against the major trend of the market. If the market is in a strong uptrend, the best opportunity to buy is when the oscillator flashes an oversold signal. Is the market in a downtrend, it is the best to look for overbought conditions to sell your position.

 

Banded oscillators are used to identify overbought and oversold conditions, but overbought does not necessarily mean that a trend reversal is ahead. So oscillators should only be used in combination with trend and breadth indicators.

 
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