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
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Example - MACD, RSI & STOCHS
Combined on the S&P Daily
17NSFX Trading Desk