# Oscillators - Who uses them?



## It's Snake Pliskin (26 November 2005)

As the thread title asks; I'm interested why and why not.
I use stochastics and find them to be of benefit with other indicators.

Snake


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## happytrader (27 November 2005)

Hi Snake

I use stochastics, bollingers, rsi and ema's as supporting evidence, secondary to pricebars and volume. Rsi will show the internal strength and weakness of a stock long before the fundamentals become common knowledge. Bollingers contracting and opening alert me to possible breakouts and reversals. Stochastics for oversold and overbought areas. 

The more you keep looking at these things the more you percieve, right down to the slope, the shape, the height etc. It all starts to talk to you after a while believe it or not. Probably the brains reticular activation system at work.

As always these are my thoughts and opinions and should not be taken as financial advice or recommendations.

Cheers
Happytrader


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## It's Snake Pliskin (28 November 2005)

Happytrader,

I think it is best to learn how to use them properly and know their strengths and weaknesses and how to use them with other signals. One can read into them too much if they want to, but keeping a balanced view and a clear head sure helps.

Cheers
Snake


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## happytrader (28 November 2005)

Hi Snake

Yes knowing how to use them properly is the key. As I've said they are secondary indicators. I could get along okay just using trend, pricebar, volume, range and stop losses. As far as I'm concerned thats all oscilators are telling you anyway in a quick compact form.

As Ive been using and observing them for so long (4 years) I've trained my 'eye' to be alert to what they are telling me. 

The reality is if they keep showing you the same thing over and over again and you can benefit from that insight who cares how you use them? 

Cheers
Happytrader.


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## tech/a (1 December 2005)

Stopped using most years ago.

Most traders use a multitude of indicators/oscillators and as mentioned have no idea how to apply them.
RSI,Bollinger M/A's stochastic all are derived from Price.
Open,close high,low,volume and open interest are re arranged in 1000s of forms to read price action.
ALL ARE LAGGING.
Like all analysis they INDICATE.
Application of ANY trade methodology isnt what will make the profit.

*ITS NOT WHAT YOU USE BUT HOW YOU USE IT*

And that certaintly doesnt mean the literal sense of how to interpret a stochastic for example----!!

Until you understand this youll be forever combining/cross checking/referencing all sorts of analysis in the futile attempt to find.

*SOMETHING THAT WORKS*

Ask yourself this question.

Why with 1000s of indicators available to EVERYONE ---Fundamental AND technical--do very few trade at a consistent profit?
If it were analysis---any and or all analysis then ALL would be profitable.


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## It's Snake Pliskin (2 December 2005)

tech/a said:
			
		

> Stopped using most years ago.
> 
> Most traders use a multitude of indicators/oscillators and as mentioned have no idea how to apply them.
> RSI,Bollinger M/A's stochastic all are derived from Price.
> ...




Tech,

You seem to think most people employ too much analysis. 
I see analysis as being very important in determining a high probability trade. However, it is a small part of the trading process and must be accompanied by other aspects. One with enough determination and the right frame of mind can determine what you have posted above. 
I'm interested in your thoughts on oscillators from experience be it good or bad.

Snake


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## wayneL (2 December 2005)

I use them for scanning.

Why? because you can program them.

I don't use them to trade.

Why? Because I can see price action better by looking at the price than at an oscillator.

Cheers


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## money tree (2 December 2005)

I backtested every indicator on every stock using metastock. Not one gave better than 50/50. Ie random.

indicators dont work.

however, trendlines, support / resistance, fibonacci and REAL TIME price action methods DO work.

forex traders using indicators get their accounts wiped out faster than you can say "holy stochastics batman, what happened?"


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## tech/a (2 December 2005)

Snake Pliskin said:
			
		

> Tech,
> 
> You seem to think most people employ too much analysis.
> 
> Snake




Yes thats correct.



			
				Snake Pliskin said:
			
		

> I see analysis as being very important in determining a high probability trade.




I'm with Wayne and Money tree on this one.

I'd be interested in you doing an exercise using your analysis over say 20 selections,which you believe give you a "high probability trading opportunity" then looking back and seeing if in actual fact that analysis gave you what you hoped or expected it would.
Placing them here for all to watch would be interesting---I dont mean this to be an exercise in embarressment but one of practicallity.

See I'm of the belief that 90% or the time the market is efficient.
10% of the time its inefficient.(Could be 3%/97% point is its not balanced perfectly---all things are mostly equal.)
In that 10% you'll get outliers (Spikes,un common occurences V the other 90% of trading happening around you).
These are what will make you the money---infact if you (or anyone) are profitable and you look at your results I'll bet a very small % of trades made your profit.
Now I dont care what sort of analysis is used there is no way that you'll know a trade will be profitable----let alone massively profitable--the day you place the trade.

So you have to take many trades and every now and again a trade will home run 100% even 500%.
Now the analysis used to get on that trade will have been the same to get on every other trade yet this trade will make the majority of profit for you.

Does that mean your analysis discovered the trade and is very successful?
Or does it mean that its useless as it also found 80 trades that either lost or underperformed this trade.?


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## kaveman (2 December 2005)

If using any indicators they need to be applied to suitable stocks. Suitable meaning charts that do not behave erratically or have large jumps in price. They are best on charts that have steady price movements. If these exist then lucky you.
Another point is that no 2 charts act alike, therefor you would probably need to assign different values to the indicator variables, or even different indicators to different charts. 
Then we come to the charts changing behaviour as they turn from speccie, to small cap to midcap to large cap and even maybe blue chip. 
I cannot see anything creating a tradeable system over these ranges with same set of squiggly lines.


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## Milk Man (2 December 2005)

What if the system operates over longer timeframes? Techtrader uses rolling highs but the rest is indicators isnt it? Mine is a bit shorter timeframe, just waiting to see if ive 'data mined' it. Just doing real time testing ATM(not backtesting).


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## It's Snake Pliskin (2 December 2005)

money tree said:
			
		

> I backtested every indicator on every stock using metastock. Not one gave better than 50/50. Ie random.
> 
> indicators dont work.
> 
> ...




moneytree,

Thanks for your informative response - ill keep it in mind.


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## It's Snake Pliskin (2 December 2005)

wayneL said:
			
		

> I use them for scanning.
> 
> Why? because you can program them.
> 
> ...




Wayne,

What do you mean you can program them? 

Most peole think they are used to pick tops and bottoms, but that is wrong. They help to determine the momentum of a trend, and give one good signal in my opinion - divergences. Those who try to pick tops and bottoms might be the statistics.

Cheers


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## It's Snake Pliskin (2 December 2005)

tech/a said:
			
		

> Yes thats correct.
> 
> 
> 
> ...




Tech,

This thread relates to oscillators only. Please share your thoughts on these indicators - I don't need system reporting information.
Don't worry Tech, I understand that technical analysis is not the answer, but finding what rights for me is the answer and that you cannot deny. 

Cheers


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## tech/a (2 December 2005)

Milk Man said:
			
		

> What if the system operates over longer timeframes? Techtrader uses rolling highs but the rest is indicators isnt it? Mine is a bit shorter timeframe, just waiting to see if ive 'data mined' it. Just doing real time testing ATM(not backtesting).





Yes I agree.But suggest that you use oscillators only for EXIT and price action for entry. Easiest to set stops as well.(entry).

I'll explain something about ATR indicators and their use when I'm at home.
Ill post a chart.


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## tech/a (2 December 2005)

Snake Pliskin said:
			
		

> Tech,
> 
> I don't need system reporting information.
> Don't worry Tech, I understand that technical analysis is not the answer, but finding what rights for me is the answer and that you cannot deny.
> ...




Hmm if you think its system reporting information then I'm wasting my breath.(fingers).
I'll stick to the topic for you.


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## Milk Man (2 December 2005)

tech/a said:
			
		

> Yes I agree.But suggest that you use oscillators only for EXIT and price action for entry. Easiest to set stops as well.(entry).
> 
> I'll explain something about ATR indicators and their use when I'm at home.
> Ill post a chart.




Thanks tech, always good to learn something new.


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## It's Snake Pliskin (2 December 2005)

tech/a said:
			
		

> Hmm if you think its system reporting information then I'm wasting my breath.(fingers).
> I'll stick to the topic for you.




Well, I have asked three times. English is English isn't it?


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## tech/a (3 December 2005)

---


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## Milk Man (3 December 2005)

Whats the theory behind the ATR stop method tech?


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## tech/a (3 December 2005)

M/M I just wanted to demonstrate the difference in exit accuracy and use with ATR V Most other oscillators.
By adjusting ATR multiplier factors out even further to 5 longer term trading exits can be placed.
Ofcourse shorter for shorter term trading.

Wins will increase with shorter time frames but % gained will be compromised.
Vice- versa for longer timeframes.


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## wavepicker (3 December 2005)

tech/a said:
			
		

> Stopped using most years ago.
> 
> Most traders use a multitude of indicators/oscillators and as mentioned have no idea how to apply them.
> RSI,Bollinger M/A's stochastic all are derived from Price.
> ...




I agree with you tech, relying on indicators is like "chasing shadows against a wall"


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## GreatPig (3 December 2005)

Milk Man said:
			
		

> Whats the theory behind the ATR stop method tech?



ATR is a measure of the volatility of a stock. By using it as a trailing stop, you're allowing for the volatility, and thus more volatile stocks will have a wider stop to prevent you getting stopped out by typical daily stock movements.

Daryl Guppy uses countback lines for the same thing. While my system works out stops based on a variety of methods, I also display both an ATR stop and a countback stop for comparison purposes, sometimes using the latter at times such as this when I want tighter stops than I know my system uses.

Here are examples of a couple of my current trades, with my system at the top, an ATR stop in the middle (2.5 x ATR(14)), and a countback stop at the bottom. In the first case the ATR stop is tighter than the countback stop, but it's the other way around in the second case.

As for why my system shows a stop line going right through the prices, well it's a bit more complicated than just a simple stop-loss. It's also controlled by MAs, and where it's actually drawn is not that relevant.

Cheers,
GP


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## Milk Man (3 December 2005)

tech/a said:
			
		

> M/M I just wanted to demonstrate the difference in exit accuracy and use with ATR V Most other oscillators.
> By adjusting ATR multiplier factors out even further to 5 longer term trading exits can be placed.
> Ofcourse shorter for shorter term trading.
> 
> ...




OK, I see now. I am familiar with those, I use them in my mechanical strategy. I just havent seen them plotted before.  

I thought it might have something to do with decrease in atr indicating compression in prices. Therefore if prices compress there is said to be explosive action brewing; and if they go the wrong way your FUBAR.


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## tech/a (3 December 2005)

Milk Man said:
			
		

> Whats the theory behind the ATR stop method tech?





OOps pehaps I missed your questions intent.
GP has answered if thats the case


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## bullmarket (4 January 2006)

*Re: Oscillators - Stochastic Indicator*

Hi to whoever is reading this 

Firstly, Happy New Year to everyone  

I was searching for an apprpriate thread to post my understanding of the Stochastic indicator and found this one, rather than start a new thread, as I've seen a lot of people (not in this forum though  ) misinterpret, imo, the stochastic indicator. So hopefully it will help someone or someone can point out anything I am missing or misinterpreting

The stochastic is basically a 'change of momentum' type indicator. It shows where the current close is, in percent, relative to the highest high minus the lowest low range of the last X days...eg if in the last 10 trading days a stock traded between 2.00 and 2.20 and the last close was 2.10 then the stochastic would read (2.10-2.00)/(2.20-2.00) = 50%......This value is typically called the %K (or fast line) on the stochastic display. The %D (or slow line) is simply a moving average of the %K line.

Buy/Sell Signals

BUY signals are given when the %K crosses above the %D line and when especially both are coming up from below the 'oversold' line.

SELL signals are given when the %K crosses below the %D line and when especially both are coming down from above the 'overbought' line

But be aware that the stochastic, like all indicators, can give false signals at times and so should not be used on its own but in conjunction with other indicators and/or chart patterns

What I see fairly often is that traders will often call a stock 'overbought' as soon as the stochastic reads above 75 (overbought line) when in reality it only may or may not be actually overbought at that stage. By the nature of how the stochastic is calculated (as shown above) an uptrending share price will consistantly read above 75 shortly after the uptrend has begun. 

The chart below shows where the buy/sell signal points from the stochastic occur on the price chart. You can see that at points A1 and A2, where the stoch starts to read above 75, the stochastic then continues to read above 75 for a period of time while the share price continues to rise (and hence the stock is not actually overbought at all during this period) until the sell signal is generated later on. Only then is the share price actually overbought

You can see that traders who called the share price overbought at A1 and A2 and sold out would have missed out on significant profits.

So the moral of the story imo is: The sell signals is given when the %K crosses below the %D and preferably when both are coming down from above the overbought line, and not simply when the %K and %D lines reach 75 from below. The reverse applies for buy signals.

Food for thought and I hope this helps someone. 

In this chart I have set %K = 10 days, %D = 5 days

cheers

bullmarket


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## markrmau (4 January 2006)

Just note - the guy who originally came up with the StochOsc clearly stated that it was to used as per TechA's post (look for price/oscillator nonconformance to signal end of the dominant trend).

Speeding up the oscillator, and buy/sell when 30/70 is crossed are more modern variations. Then again, if you get positivie expectancy, who cares?


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