Oscillators
Oscillators are in a general sense indicators that are used to determine whether the market has gone too far in one direction. They may be bounded, having possible values only with a specified range, or they may be unbounded, being capable of taking on any value. For all practical purposes, just about any measure of price can be turned into an oscillator by a rather simple mathematical transformation. Unfortunately, the overriding probem with indicators is what period to use in calculating them: too fast a period and you get whippy choppy action that reacts too fast and leaves you breathless with its switches in direction; too slow a period, and the oscillator lags so much that the action it portends is already over, by the time that it signals the action.
How about if instead of trying to determine that best period for the oscillator, we let the market tell us? Instead of specifying a period, we shall just use the market's dominant cycle period or a suitable fraction thereof, half or quarter, if we need zippier action. Many pundits claim that the correct period to use for an oscillator is half the period of dominant cycle, if such can be determined. That is the default that we usually use. Check out the indicator, and you will see how you can change that.
U.S. Government Required Disclaimer - Commodity Futures Trading Commission
Futures and Options trading has large potential rewards, but also large
potential risk. You must be aware of the risks and be willing to accept them in
order to invest in the futures and options markets. Don't trade with money you
can't afford to lose. This, and all other information on our website, is neither
a solicitation nor an offer to Buy/Sell futures or options. No representation is
being made that any account will or is likely to achieve profits or losses
similar to those discussed on this web site. The past performance of any trading
system or methodology is not necessarily indicative of future results.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.