Oscillators :

1- extremely useful in non-trending markets where prices fluctuate in a horizontal price band or trading range

2- Oscillators alert the trader to short term market extremes ( overbought or oversold )

3- Oscillators warn trader that a trend is losing momentum 4- Oscillators can signal that a trend may be nearing completion by

displaying divergences 5- The crossing of the midpoint line can give trading signals 6- VERY IMPORTANT : the basic trend analysis is still the overriding

consideration , oscillator analysis should NOT be used as an excuse to trade against the prevailing market trend

Momentum :

1- measures the velocity of price changes ( rocket example ) 2- formula of momentum is : M = V - V^x where V is the latest closing

price & V^x is the closing price of x days ago 3- momentum oscillator fluctuates around a zero line , reading too far

above the zero line are overbought while values too far below the line are oversold

4- a momentum shorter time period produces more sensitive line with more oscillations & vice versa

5- the Momentum line leads the price action , LEADING indicator 6- the momentum chart has a zero line , a crossing above the zero line

would be a buy signal , crossing below is a sell signal 7- VERY IMPORTANT : the basic trend analysis is still the overriding

consideration , oscillator analysis should NOT be used as an excuse to trade against the prevailing market trend

8- one problem with the momentum line , the absence of a fixed upper & lower boundary

Note: In case of a 10 days Momentum, if the gains that achieved by the latest closes are the same as the gains 10 days earlier , while prices may still advancing, the rate of ascent or the velocity has leveled off , so the momentum line is going to flatten out, BUT when momentum line begins to drop toward the zero line , the uptrend prices is still in force but in decelerating rate .. the uptrend is losing momentum . Price 120 127 132 134 134 131 126 120 122 128

MI 7 5 2 0 -3 -4 -6 2 6

Rate of change ( ROC ) :

1- to measure the rate of change , a ratio is constructed of the most recent closing price to a price a certain number of days in the past ( divided by )

ROC = 100 ( V / Vx ) Where V = the latest closing price Vx = closing price of x days ago 2- ROC is from the momentum family and it’s providing the same

information

Commodity channel index ( CCI ) : Developed by Donald Lambert

the Commodity Channel Index (CCI) was designed to trade in commodities CCI compares the current price with a moving average over a selected time

span ( usually 20 )

CCI can be used to identify overbought and oversold levels. A security would be deemed oversold when the CCI dips below -100 and overbought when it exceeds +100. From oversold levels, a buy signal might be given when the CCI moves back above -100. From overbought levels, a sell signal might be given when the CCI moved back below +100.

As with most oscillators, divergences can also be applied to increase signals

Trend line breaks can be used to generate signals. Trend lines can be drawn connecting the peaks and troughs.

Relative Strength Index ( RSI ) :

1- Developed by Welles Wilder 2- Provide a constant range ( boundaries ) that tell the trader when the

prices are overbought or oversold 3- Wilder originally employed 14 days period for RSI, 14 weeks for weekly

charts ( but also 9 , 7 , 5 days are well known ) 4- The shorter time period the more sensitive the oscillator becomes & the

wider its amplitude 5- RSI is plotted on a vertical scale from 0 to 100 , movement above 70 is

considered overbought , under 30 is considered oversold 6- A top/bottom failure swing occurs when RSI line reach a top/bottom &

fails to exceed the previous top/bottom 7- RSI divergence gives trader an early warning of a reversal move

Stochastic ( K%D ):

1- Developed by George C. Lane in the late 1950s 2- the Stochastic Oscillator is a momentum indicator that shows the

location of the current close relative to the high/low range over a set number of periods.

3- Closing levels that are consistently near the top of the range indicate accumulation (buying pressure) and those near the bottom of the range indicate distribution (selling pressure).

4- Calculation :

%K tells us that the close (115.38) was in the 57th percentile of the high/low range, or just above the mid-point. Because %K is a percentage or ratio, it will fluctuate between 0 and 100. A 3-day simple moving average of %K is usually plotted alongside to act as a signal or trigger line, called %D.

Larry Williams %R :

1- Developed by Larry Williams, Williams %R is a momentum indicator that works much like the Stochastic Oscillator. It is especially popular for measuring overbought and oversold levels.

2- The scale ranges from 0 to -100 with readings from 0 to -20 considered overbought, and readings from -80 to -100 considered oversold.

3- shows the relationship of the close relative to the high-low range over a

set period of time

4- gives all signals as same as stochastic

Moving Average Convergence / Divergence ( MACD ) :

1- Developed by Gerald Appel 2- Moving Average Convergence/Divergence (MACD) is one of the

simplest and most reliable indicators available. MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics.

3- These lagging indicators are turned into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits.

4- The faster line ( called the MACD line ) is the difference between two Exponential Moving Averages of closing prices ( usually 12 & 26 days or weeks )

5- The slower line ( called the signal line ) is usually a 9 period exponential average of MACD line

6- Note : you’ll see two lines on your computer screen although three lines are actually used in its calculation

7- Buy / Sell signals when the two line cross : A- Buy signal : when MACD line cross above the slower signal line B- Sell signal : when MACD line cross below the slower signal line 8- An overbought condition is present when the lines are too far above the

zero line, oversold condition is present when the lines are far below the zero line

9- Divergence : A- Bearish divergence : when the MACD line are well above the zero

line ( overbought area ) and start to weaken while prices continue to move higher

B- Bullish divergence : when the MACD line are well below the zero line ( oversold area ) and start to move up ahead the price line, that’s often an early sign of market bottom

10- MACD Histogram : Plots the difference between the two MACD lines, Signals are given on the zero line crossing