The Problem with Oscillators. For both traders and investors I talk to, I still see misunderstandings about the (over) use of oscillators, such as the Stochastic or the RSI. Oscillators are best used to help confirm a turn or a reversal. They do little to help us define or validate a trend or the continuation of a trend. Two key threshold questions which need to be answered first are: a) what is the nature of the market? and b) what is methodology one is using to trade/invest in that market? The technical tools you then choose should match. For example, if a market is ranging or in a sideways channel, then oscillators can help to confirm a turn or a likely bounce off strong support/resistance (s/r) lines. When a market is strongly trending, oscillators’ extreme or overbought/sold ranges ‘hang’ and can give false signals of a turn or reversal. In most cases, primary tools such as such as non lagging price action and s/r lines should be looked at first. Oscillators therefore act as optional, secondary confirmation for select market types and methodologies. Kind regards Lee M. Spano, Private Investor, Creatness CEO Further insights and resources at creatness
Posted on: Thu, 20 Jun 2013 01:21:49 +0000
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