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Technical Analysis
- Standard Oscillators
1NSFX Trading Desk
Agenda
• What are oscillators?
• Relative Strength Index (RSI)
• Moving Average Convergence/Divergence
(MACD)
• Stochastics
2NSFX Trading Desk
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.
3NSFX 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:
𝑅𝑆𝐼 = 100 −
100
1+𝑅𝑆
, 𝑤ℎ𝑒𝑟𝑒
𝑅𝑆 =
𝐴𝑣𝑔 𝑜𝑓 𝑛 𝑝𝑒𝑟𝑖𝑜𝑑𝑠′ 𝑢𝑝 𝑐𝑙𝑜𝑠𝑒𝑠
𝐴𝑣𝑔 𝑜𝑓 𝑛 𝑝𝑒𝑟𝑖𝑜𝑑𝑠′ 𝑑𝑜𝑤𝑛 𝑐𝑙𝑜𝑠𝑒𝑠
This will give us an index ranging from 0-100, making it possible to assess
possible divergence or if an instrument is oversold/overbought
4NSFX Trading Desk
Relative Strength Index (RSI)
1. Oversold – market corrects higher
5NSFX Trading Desk
Relative Strength Index (RSI)
1. Oversold – market corrects higher
2. Overbought – market corrects lower
6NSFX Trading Desk
Relative Strength Index (RSI)
1. Oversold – market corrects higher
2. Overbought – market corrects lower
3. Divergence – price moves opposite of
indicator
7NSFX Trading Desk
MACD
• Developed in late 1970s by Gerald Appel
• Built on several exponential moving averages and applied for both trend-
following 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
8NSFX Trading Desk
MACD
Signal Line
MACD Line
MACD Histogram (MACD Line – Signal Line) 9NSFX Trading Desk
MACD
1. Line crossovers
10NSFX Trading Desk
MACD
1. Line crossovers
2. Bullish Divergence (convergence)
11NSFX Trading Desk
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: %𝐾 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐶𝑙𝑜𝑠𝑒 −𝐿𝑜𝑤𝑒𝑠𝑡 𝐿𝑜𝑤(𝑛)
𝐻𝑖𝑔ℎ𝑒𝑠𝑡 𝐻𝑖𝑔ℎ 𝑛 −𝐿𝑜𝑤𝑒𝑠𝑡 𝐿𝑜𝑤 (𝑛)
∗ 100
%𝐷 = 3𝑑𝑎𝑦 𝑆𝑀𝐴 𝑜𝑓 %𝐾
12NSFX Trading Desk
Stochastic Slow
%K
%D
13NSFX Trading Desk
Stochastic Slow
1. Overbought/Oversold
14NSFX Trading Desk
Stochastic Slow
1. Overbought/Oversold
2. Crossovers
15NSFX Trading Desk
Stochastic Slow
1. Overbought/Oversold
2. Crossovers
3. Convergence/Divergence
16NSFX Trading Desk
Example - MACD, RSI & STOCHS
Combined on the S&P Daily
17NSFX Trading Desk

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Technical Analysis: Oscillators by NSFX

  • 1. Technical Analysis - Standard Oscillators 1NSFX Trading Desk
  • 2. Agenda • What are oscillators? • Relative Strength Index (RSI) • Moving Average Convergence/Divergence (MACD) • Stochastics 2NSFX Trading Desk
  • 3. 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. 3NSFX Trading Desk
  • 4. 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: 𝑅𝑆𝐼 = 100 − 100 1+𝑅𝑆 , 𝑤ℎ𝑒𝑟𝑒 𝑅𝑆 = 𝐴𝑣𝑔 𝑜𝑓 𝑛 𝑝𝑒𝑟𝑖𝑜𝑑𝑠′ 𝑢𝑝 𝑐𝑙𝑜𝑠𝑒𝑠 𝐴𝑣𝑔 𝑜𝑓 𝑛 𝑝𝑒𝑟𝑖𝑜𝑑𝑠′ 𝑑𝑜𝑤𝑛 𝑐𝑙𝑜𝑠𝑒𝑠 This will give us an index ranging from 0-100, making it possible to assess possible divergence or if an instrument is oversold/overbought 4NSFX Trading Desk
  • 5. Relative Strength Index (RSI) 1. Oversold – market corrects higher 5NSFX Trading Desk
  • 6. Relative Strength Index (RSI) 1. Oversold – market corrects higher 2. Overbought – market corrects lower 6NSFX Trading Desk
  • 7. Relative Strength Index (RSI) 1. Oversold – market corrects higher 2. Overbought – market corrects lower 3. Divergence – price moves opposite of indicator 7NSFX Trading Desk
  • 8. MACD • Developed in late 1970s by Gerald Appel • Built on several exponential moving averages and applied for both trend- following 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 8NSFX Trading Desk
  • 9. MACD Signal Line MACD Line MACD Histogram (MACD Line – Signal Line) 9NSFX Trading Desk
  • 11. MACD 1. Line crossovers 2. Bullish Divergence (convergence) 11NSFX Trading Desk
  • 12. 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: %𝐾 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐶𝑙𝑜𝑠𝑒 −𝐿𝑜𝑤𝑒𝑠𝑡 𝐿𝑜𝑤(𝑛) 𝐻𝑖𝑔ℎ𝑒𝑠𝑡 𝐻𝑖𝑔ℎ 𝑛 −𝐿𝑜𝑤𝑒𝑠𝑡 𝐿𝑜𝑤 (𝑛) ∗ 100 %𝐷 = 3𝑑𝑎𝑦 𝑆𝑀𝐴 𝑜𝑓 %𝐾 12NSFX Trading Desk
  • 15. Stochastic Slow 1. Overbought/Oversold 2. Crossovers 15NSFX Trading Desk
  • 16. Stochastic Slow 1. Overbought/Oversold 2. Crossovers 3. Convergence/Divergence 16NSFX Trading Desk
  • 17. Example - MACD, RSI & STOCHS Combined on the S&P Daily 17NSFX Trading Desk