The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

ChAPter 8 Window Oscillators and Overlay Indicators

L e a r nIn g O b j eCtIv e s

After studying this chapter, you should be able to:

■ Understand the significance of oscillators and indicators and how to use them to fore-

cast reversals and breakouts in the market

■ Describe the difference between overlay indicators and window oscillators

■ Identify and differentiate between various types of overlay indicators and understand

how chart scaling affects each type of indicator

■ Set up multiple timeframe charts to better observe price and indicator action

O

scillators and indicators have fascinated traders and analysts since the first

average was created. Oscillators and indicators can help reveal underlying

strengths and weaknesses of price action, which would not have been obvious

otherwise. In this chapter we will learn about the construction and proper appli-

cation of oscillators and various overlay indicators to help better forecast poten-

tial reversals and breakouts in the markets.

8.1 Defining Indicators and Oscillators

Classification of Oscillators and Indicators

Indicators are subdivided into two categories:

1. Overlay indicators: Overlay indicators are plotted on the same chart as price
   action, as well as window oscillator action. They represent barriers to price
   or window oscillator action, that is, they provide support and resistance at
   various price and oscillator levels. It should be noted that window oscillator