Oscillators are a useful tool for traders which give them the limit values for the price action evaluation. The currency price has no range, so it can be anything from zero to infinity. Therefore, it is almost impossible to identify the highest and lowest values on such a limitless range. Oscillators solve this problem.
The technical analyst uses the terms convergence and divergence, because of their rare occurrence compared to the parallel movements, to predict the values to be used by traders.
The divergence situation occurs when a new high change in price trend does not results in subsequent change of oscillator’s new high and instead, the oscillator shows a new low. On the other hand, convergence is when two or more successive trend lows differ by successive oscillator’s highs.
RSI is a simple indicator which can be used by both experienced as well as beginner traders because of the easy to understand signs which it generates. J. Welles Wilder, a well known commodity trader, created this indicator in 1978. He was also the creator of the Direction Movement, Average True Range and Parabolic Stop and Reverse tools.
RSI works on a straightforward formula, and with the help of extensive materials available online trader can understand the mathematics. However, traders do not need to know the depths of this mathematical knowledge because this indicator is already simplified to the best level it can be. It is almost impossible to change the mathematics of this indicator to get more profitable results.
Williams % R (percentage range)
Larry Williams is the creator of this indicator. This person is known for his achievement as first winner of the World Cup Championship of Futures Trading. He got this award in 1987 for converting a $10,000 amount in his account to beyond one million in just one year. Surprisingly, the history repeated itself and his daughter, Michelle Williams, also won the award in 1996 for converting $10,000 in her account to $100,000. She got the second best result of competition after her father.
George Lane, who was an Elliot Wave philosopher, invented the stochastics in the era of 1950’s. The purpose of this indicator is to identify the maximums and minimums in a rising profitable trend and can also be used efficiently in ranging markets.
Moving Average Convergence Divergence
Gerald Appel developed the MACD in 1960’s decade and it is ranked amongst the most favorite tools used by technical analysts. It gives the best results in the trending markets, but its results are not good enough in case of fluctuating markets.
Average True Range
J.W. Wilder developed another indicator, ATR, which is designed to determine the trend’s strength by making a comparison of today’s lows and highs with the yesterday’s closing value. To determine the value from the indicator, first step is to calculate today’s range by subtracting the low from the high (high-low) or using the true ranges (today’s closing value-yesterday’s high/ today’s closing value-yesterday’s low). The one which has the greater absolute answer from the two of these will be considered. These subsequent values get compounded into a price-sensitive EMA and then the decisions can be made on the basis of the results.
Force Index Oscillator
The force index oscillator is a tool to measure the trend’s force in the downward or upward movements.
This index can be calculated by the following equation by getting multiple of the last and preceding closing prices with the overall volume of the trend. Like all other oscillators, you can find divergences using the force index and generate signals. Using force index, you can also even the fluctuations by taking a moving average, simple or exponential, in the index. Thus, the noise become minimal and the indicator can successfully analyze long trends. Most software now uses the smoothed version of the raw index now.