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Technical Analysis - Standard Oscillators

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Agenda • What are oscillators? • Relative Strength Index (RSI) • Moving Average Convergence/Divergence (MACD) • Stochastics

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What are oscillators? • A mathematical tool to assess market moves • Compared to Moving Averages and other indicators, which are applied on the chart, the oscillators are separate and give an index to measure market conditions from an overbought/oversold, divergence/convergence perspective • Good for identifying potential reversals and have historically proven most successful when markets are trading sideways, without a clear trend. NSFX Trading Desk


Relative Strength Index (RSI) • Developed by Welles Wilder and first published in 1978 • The RSI is a momentum indicator which compares the average price change of the advancing periods with the average change of the declining periods. • Useful in both short and long term analysis, but standard criteria are set different • Standard formula: đ?‘…đ?‘†đ??ź = 100 − đ?‘…đ?‘† =

100 , đ?‘¤â„Žđ?‘’đ?‘&#x;đ?‘’ 1+đ?‘…đ?‘†

đ??´đ?‘Łđ?‘” đ?‘œđ?‘“ đ?‘› đ?‘?đ?‘’đ?‘&#x;đ?‘–đ?‘œđ?‘‘đ?‘ ′ đ?‘˘đ?‘? đ?‘?đ?‘™đ?‘œđ?‘ đ?‘’đ?‘  đ??´đ?‘Łđ?‘” đ?‘œđ?‘“ đ?‘› đ?‘?đ?‘’đ?‘&#x;đ?‘–đ?‘œđ?‘‘đ?‘  ′ đ?‘‘đ?‘œđ?‘¤đ?‘› đ?‘?đ?‘™đ?‘œđ?‘ đ?‘’đ?‘ 

This will give us an index ranging from 0-100, making it possible to assess possible divergence or if an instrument is oversold/overbought

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Relative Strength Index (RSI)

1. Oversold – market corrects higher

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Relative Strength Index (RSI) 1. Oversold – market corrects higher 2. Overbought – market corrects lower

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Relative Strength Index (RSI) 1. Oversold – market corrects higher 2. Overbought – market corrects lower 3. Divergence – price moves opposite of indicator

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MACD • Developed in late 1970s by Gerald Appel • Built on several exponential moving averages and applied for both trendfollowing and gauging of momentum. • Compared to the RSI, the MACD fluctuates around zero, not indexed and is not as useful as the RSI as identifying overbought/oversold levels. • Consisting of a so-called MACD-line and a signal line (and a histogram showing the difference between the two): Standard Parameters: MACD-line: (12-day EMA – 26-day EMA) Signal Line: 9-day EMA of MACD Line MACD Histogram: MACD Line – Signal Line

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Signal Line MACD Line

NSFX Trading Desk MACD Histogram (MACD Line – Signal Line)


MACD 1. Line crossovers

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MACD 1. Line crossovers 2. Bullish Divergence (convergence)

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Stochastic Slow • Developed in the late 1950s by George C. Lane • Shows location of the close relative to a high-low range over an interval and follows the momentum of the price action. • Good for finding reversal setups as well as overbought/oversold situations. Formula:

%đ??ž =

đ??śđ?‘˘đ?‘&#x;đ?‘&#x;đ?‘’đ?‘›đ?‘Ą đ??śđ?‘™đ?‘œđ?‘ đ?‘’ −đ??żđ?‘œđ?‘¤đ?‘’đ?‘ đ?‘Ą đ??żđ?‘œđ?‘¤(đ?‘›) ∗ 100 đ??ťđ?‘–đ?‘”â„Žđ?‘’đ?‘ đ?‘Ą đ??ťđ?‘–đ?‘”â„Ž đ?‘› −đ??żđ?‘œđ?‘¤đ?‘’đ?‘ đ?‘Ą đ??żđ?‘œđ?‘¤ (đ?‘›)

%đ??ˇ = 3đ?‘‘đ?‘Žđ?‘Ś đ?‘†đ?‘€đ??´ đ?‘œđ?‘“ %đ??ž

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Stochastic Slow


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Stochastic Slow 1. Overbought/Oversold

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Stochastic Slow 1. Overbought/Oversold 2. Crossovers

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Stochastic Slow 1. Overbought/Oversold 2. Crossovers 3. Convergence/Divergence

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Example - MACD, RSI & STOCHS Combined on the S&P Daily

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Technical Analysis Oscillators by NSFX  
Technical Analysis Oscillators by NSFX