Summary

  • Oscillators show an extreme condition in the market – the price has gone too far, too fast.
  • Oscillators can show when a trend is losing momentum.
  • All oscillators have the same basic characteristics.
  • An oscillator is a secondary indicator to confirm what you already suspect.
  • Oscillators can give misleading signals, particularly at the beginning of a trend.
  • When an overextended oscillator diverges from the price line, watch out!
  • The momentum indicator is the difference between the current price and the price X days ago.
  • The rate of change indicator is the current price divided by the price X days ago, times 100.
  • The commodity channel index is the current price compared with the moving average over the last X days.
  • The relative strength index compares average updays with average downdays.
  • The stochastic oscillator is based on the closing price position relative to the trading range, and a second line gives trading signals.
  • The Williams %R is a similar idea, relating the closing price to a price range.
  • You can adjust and experiment with time scales to change the sensitivity – relating to market cycles and multiples of them works well.
  • The moving average convergence/divergence relates two moving averages, and uses a further average to anticipate crossings. It combines the oscillator and the trading signal.
  • Contrary opinion has a psychological basis, and should be considered at market extremes. Market sentiment is available online.

At the end of each module there is a quiz. You can take a quiz at any point, but we suggest you view each module before taking the quiz. When you’re ready to start the quiz, click the take quiz ‘Start’ button below -:

The Masters Certificate in Technical Analysis - Module 7

Questions – Module 7
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