Documentos de Académico
Documentos de Profesional
Documentos de Cultura
But
oscillators are generally used in a wrong way and the common reaction of traders is to sell if the oscillator goes into
overbought zone and buy once it moves in oversold zone.
The above is too simplistic way of trading with an oscillator....here we will discuss some nonconventional ways.....
Best wishes for the " Oscillating Roller Coaster Journey"
I would like to share an important phenomenon regarding oscillator overbought/oversold conditions. Whenever an oscillator
like Stochastics,( or even RSI,ROC etc ) stays above the overbought limit for more than 5 bars without taking a dip from
overbought to neutral zone....the market has a lot of steam left further to go up, market then continues upward journey,then
comes down,then goes into overbought zone again but shows negative divergence and then only it comes down...till then it
keeps making higher tops. This is a very strong bullish signal to trade.....
Mirror image for oscillator staying in oversold region for more than 5 bars...
The above phenomenon was what was happening towards the later part of the session yesterday (26-06-09).... I traded this
observation yesterday and thought I will share with all....
I am posting Bank nifty fut 5 min chart of 26-06-09 which is used for day trading.....the top panel is a stochastic oscillator....I
have marked 80 and above as overbought zone
The market goes from overbought to oversold and so on so forth in a trading or sideways market environment...so selling in
overbought and buying in oversold zone is a good strategy....but somewhere markets start trending and that is where the
trouble starts for our oscillator trader.
Observe in the chart that when market stays in overbought region for more than 5 bars ...it is extremely overbought and
selling it is incorrect....market needs to dissipate this overbought reading and till then it will blast off on the upside and our
oscillator trader will keep on selling in a market which is blasting off ....The correct action here is BUY....not sell...
I have a question here. Oscillators like Stoch has 2 lines. One fast moving K and another slow moving D.Usually it will happen
that the fast line will cross into overbot zone before the slow one does. Usually, a lag of 2-3 candles will take place.
So, for counting 5 bars, what should we consider? When should our counting begin? When both the slow and fast have crossed
over into overbot/obversold zone or when the fast moving indicator crosses?
Slow line is basically the moving average of the fast line...done for smoothing...so if you are a very aggressive trader...start
counting from fast line...if you are a bit relaxed type...start counting from slow line...the aggressive trader counting on fast line
will have more trades,early entries but also more whipsaws.....part of the game we are in....
To understand the correct way of trading on oscillators let us study the Nifty futures 60 min chart. The stochastic oscillator
is doing a great job till May 09end...calling each top and bottoms and our oscillator trader is on a high and feels that he has
figured out everything in the markets and he is on his way to top the next batch of Market Wizards......But market has its own
ways...we all know that....
4) Wait for a downclose ( meaning close less than earlier day's close)
5) Ensure that by that time oscillator does not go very near oversold region
6) Sell when the low of the downclose bar is broken on downside.....
If you observe all 6 qualifiers you will see that there was no shorselling opportunity in this uptrend.....our trader friend is home
safely....and made money in longs....
2) 9-6-09 ,3:00 Bar onwards
Oscillator went into overbought territory and stayed there for 9 bars.....so no shortselling ideas to be entertained....
Here the market will move to neutral zone,dissipate the extra bullish pressure ,then go to overbought region,fulfill all 6
qualifiers,give negative divergence and then change its direction to down...let us see what it did...
Come to 12-06-09 ,12:00 bar...after dipping into neutral territory the oscillator has gone to overbought zone again....it stayed
there only for 1 bar.....next bar 1:00 it dips again into neutral zone,gives a downclose...Now all qualifiers satisfied...the low of
the 1:00 bar cracked in 12-6-09 , 3:00 bar and that is an ideal sell entry....mkt never looked up after thatAlso note the
classic negative divergence here,the mkt making new higher top oscillator making lower top....all perfect...
The other two are mirror images in downtrend.Our friends can easily figure them out well .....
The Oscillator Entry Qualifiers for a Long Trade are as under :