Jun 16 2008
Using Oscillators to get a feel for the market
Oscillators are great tools when used wisely. They offer many ways in which they can be used, divergence, over bought/over sold, crossovers to name a few.
They can also be used to get a feel for the markets, whether trending or in a range.
If a trader wants to use oscillators to get a feel for the markets, what they need is some recent price action and a belief that the current trend or range will continue long enough to create some more opportunities.
For example, if you believe you are in an uptrend, and the trend has quite a way to go, you can then use an oscillator such as the ‘stochastics oscillator’ to tell you how deep the corrections are likely to go, based on how the oscillator behaved recently.
All you need to do is adjust the oscillators variable until the indicator produces a repetitive signal and one that you feel you can use.
Take a look at the chart below.
This is a daily chart and what has been added is a stochastics with a 25,5,5 setting. The most important variable was the first number, 25. Not because 25 works better than any other number, but because for this market, during this trend, 25 offered simple triggers as to when the corrections were likely to end and the trend continue, as shown by the arrows.
All you do as the trader is determine what number gives you the best signals or triggers for a possible trade.
When in an uptrend, look to use the oscillator as a signal that a correction is ending, and not when the trend itself is ending. Likewise, in a downtrend, use the oscillator as a signal that a bear market rally is ending, and not the downtrend itself.
However, when in a ranging or sideways market, you can use the oscillator as a way to signal when the top and the bottom of the range have been made.
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That article was very helpfull , thanks very much.
Thanks Louis - always a pleasure
The tips given are useful and the window setting is new to me. I shall try it on my chart next time. Thanks, Dean.