the hAnDbook of technIcAl AnAlySISThe OB and OS levels for unbounded oscillators are:■ (^) CCI Oscillator: OB (+100) OS (−100)—note that these values are measures
of volatility. This oscillator coincides well with the Bollinger band 1 standard
deviation values. The ± 200 levels also match the Bollinger band ± 2 standard
deviation (or sigma) bands.
■ (^) Standard Deviation Oscillator: OB (+1 or +2 Sigma) OS (−1 or −2 Sigma)
■ (^) Most unbounded oscillators do not have widely accepted levels of
overextension.This is because such levels are specific to a particular stock or
market historical oscillator action.
Figure 8.4 depicts various signals being generated by oscillator divergence,
chart patterns, overextensions, and signal crossovers.
Figure 8.5 depicts a historically significant overbought level on the MACD un-
bounded oscillator, on the daily chart of Amazon.com Inc. Notice that every time
the MACD tests or exceeds the overbought level, this is was followed by a reversal
or correction in price, as seen at time lines 1 to 6. These overextension levels are
best determined via visual inspection.
Figure 8.6 depicts overbought and oversold levels on the cycle‐tuned bound-
ed stochastic oscillator. Notice that the oversold levels coincided perfectly with
bottoms in the Silver markets, as indicated by all of the up arrows. Note that
although the stochastics and RSI have default values for the overbought and over-
sold levels, our example used the historically significant overbought and oversold
levels, which were determined via visual inspection (in lieu of the conventional 80
and 20 percent OB and OS levels respectively).
fIgure 8.4 Various Buy (Bullish) and Sell (Bearish) Signals Generated by Divergence,
Signal Crossovers, Chart Patterns, and Overextensions.
Source: MetaTrader 4