Oscillator Variables
Just as with the moving averages, you are free to change the number of time periods that any of these oscillators and indicators use, and you will find different results. With moving averages, you use the smoothing of the values with larger numbers of periods to create a trend indicating line, whereas smaller numbers of periods give a more responsive indication.
With all the oscillators, you can experiment with the variables to settle on values that work for the security you trade on the time scale you use. In this context, “work” means that you are getting the results that you want out of the values generated. You want a balance between getting too many signals that can cause you to trade too much, and having too few signals so that you miss potential trades. The oscillators can be applied to any time scale, so you can equally well use them on weekly charts, for instance to check on the markets direction, before using daily charts for timing your trade.
For good reason, many traders try to tie the variables to the market cycles. The markets usually exhibit cyclical tendencies which can be empirically determined. The monthly cycle, which is about 20 trading days, is one of the major influences, and you can also use harmonics of this, such as the five days (half of a half) used for the momentum indicator. We’ll be going into cycles in depth in Module 9.
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