Befriending Trading Oscillators

There are three main trading oscillators: the MACD, ROC, and Stochastic indicators.  These three trading oscillators help show market tops and bottoms, as well as prime a trading strategy to prepare for changes in the current trends and predict future market direction.


The MACD is one of the most complex trading oscillators since it features both lagging and leading market indicators.  The indicator uses two moving averages: one based on the rate of change of the stock and another based on the price that allows a trader to quickly and easily see overbought and oversold levels based on the reading of the MACD.

The MACD can also be used like two paired simple moving averages.  When the two moving averages within the MACD cross, an alternating buy or sell signal is created.

Rate of Change

The standalone Rate of Change is one of the more popular trading oscillators for two reasons.  First, it is simple and easy to use, and secondly, it can be used with purposes beyond trading oscillators.

The rate of change shows very simply the rate of change over the course of a certain period for a specific financial product.   A rate of change oscillator set on a 10 period setting would reflect the percentage change of price over the past 10 periods.  Unlike other oscillators, the ROC is a centered oscillator that revolves around 0 as a stock or security moves into positive or negative territory.

Stock traders can use the rate of change differently than other trading oscillators.  Some traders set a ROC indicator for the sole purpose of comparing the rate of change between two securities in a period of time.  The ROC’s visual appearance makes the comparison easier to read and quicker to comprehend.

Stochastic Trading Indicators

The stochastic is just as complex as the MACD, utilizing a reading that is based on support and resistance levels, as well as adding a three term moving average of the first reading to create buy and sell short term crosses.

The stochastic is primarily used as an overbought and oversold indicator, and many traders use its internal moving average as a confirmation signal.  When an overbought reading is shown, a trader may sell short only after a stochastic cross.  Likewise, a cross can confirm a long position.

The Stochastic can be set as both “slow” or “fast.”  A slow stochastic will be less volatile and show fewer, though likely more accurate, trading signals, whereas a fast stochastic will be more volatile and show more trading signals that are less accurate.

Incorporating the Trading Oscillators

Trading oscillators are a great tool for beginning and expert technical analysts alike.  These very simple to use, but complex algorithm based trading oscillators work with a number of trading strategies and can be customized to fit any timeframe.  Consider coupling one of the trading oscillators with a moving average system or with candlestick analysis for multiple confirmations of long and short positions and beginning and ending trends.
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...
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