Click here for a live example. Metatarder here to download this spreadsheet example. Top and bottom pickers can act fogex overbought or oversold, but it is often prudent to wait for a confirmation move. The ability to consistently move above is a show of strength. Once a security shows strength by pushing into overbought territory more than once, a subsequent failure to exceed this level shows weakening momentum that can foreshadow a decline. Readings from to are considered oversold. Readings from 0 to are considered overbought.




In contrast, the Stochastic Oscillator reflects the level of the close relative to the lowest low. Readings from 0 to are considered overbought. Readings from to are considered oversold. Click here to download this spreadsheet example. Assume that the highest high equalsthe lowest low equals dunnigan bars metatrader forex the close equals The highest high less the close equals 2 -which is the numerator 0.

The centerline,is an important level to watch. Think of it as the 50 yard line ranking platform forex 2013 gmc football. The offense has a higher chance of scoring when it crosses the 50 yard line. The defense has an edge as long as it prevents the offense from crossing the 50 yard line. This suggests that the cup is half full. Conversely, a cross below means prices are trading in the bottom half of the given look-back period.

This suggests that the cup is half empty. Low readings below indicate that price is near its low for the given time period. High readings above indicate that price is near its high for the given time period. The IBM example above shows three day ranges yellow areas with the closing price at the end of the period red dotted line.

The close equals when the close was in the middle of the range. The oscillator ranges from 0 to Traditional settings use as the overbought threshold and as the oversold threshold. These levels can be adjusted to suit analytical needs and security characteristics. Readings below occur when a security is trading at the low end of its high-low range.

Before looking at some chart examples, it is important to note that overbought readings are not necessarily bearish. Securities can become overbought and remain overbought during a strong uptrend. Closing levels that are consistently near the top of the range indicate sustained buying pressure. In a similar vein, oversold readings are not necessarily bullish. Securities can also become oversold and remain oversold during a strong downtrend. Closing levels consistently near the bottom of the range indicate sustained selling pressure.

The red dotted lines mark a move below that occurs after an overbought reading. The green dotted lines mark a move above that occurs after an oversold reading. As noted dunnigan bars metatrader forex, overbought is not necessarily bearish and oversold is not necessarily bullish. Top and bottom pickers can act when overbought or oversold, but it is often prudent to wait for a confirmation move. A move below confirms a downturn after an overbought reading.

A move above confirms an upturn after an oversold reading. The failure to move back into overbought or oversold territory signals a change in momentum that can foreshadow a significant price move. The ability to consistently move above is a show of strength. Once a security shows strength by pushing into overbought territory more than once, a subsequent failure to exceed this level shows weakening momentum that can foreshadow a decline.

The stock was strong with numerous overbought readings from February to April. This deep plunge showed strong selling pressure. The subsequent recovery fell short of and did not reach overbought territory. This provided the second sign of weakness. After failing belowthe decline below signaled a downturn in momentum and the stock declined rather sharply.

Another failure just below in mid June also resulted in a sharp decline. Chartists can adjust the look-back period to suite their analysis objectives. A longer time frame makes the indicator less sensitive. After becoming overbought in October, the indicator moved lower and became oversold twice in December. These were promising signs. This showed underlying strength. The subsequent move above foreshadowed a sharp advance over the next few months. Readings below are consistent with a downtrend.

The default setting is 14, but users can opt for a shorter timeframe to produce a more sensitive oscillator or a longer timeframe to produce a less sensitive oscillator. Once selected, the indicator can be place above, below or behind the underlying price plot. A 3-day SMA can be added as a signal line. Click here for a live example. Technical Analysis of the Financial Markets has a chapter devoted to momentum oscillators and their various uses. Pring's book dunnigan bars metatrader forex the basics of momentum indicators by covering divergences, crossovers and other signals.

There dunnigan bars metatrader forex two more chapters covering specific momentum indicators with plenty of examples. Send us your feedback! Market data provided by: Interactive Data Corporation. Commodity and historical index data provided by: Pinnacle Data Corporation. Unless otherwise indicated, all data is delayed by 20 minutes. The information provided by StockCharts. Trading and investing in financial markets involves risk.

You are responsible for your own investment decisions. You are here: StockCharts. Click here for a live example. Technical Analysis of the Financial Markets. Murphy Technical Analysis Explained by Martin Pring. Sign up for our FREE twice-monthly ChartWatchers Newsletter! Don't Ignore This Chart.




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