Window Oscillators and Overlay Indicators
default setting generated too many oversold signals as compared to the cycle‐
tuned oscillator.Oscillator analysis on Multiple timeframes (Mtf)
Oscillators and overlays of various timeframes may be plotted on the same chart
for more effective comparison of oscillator action and its relationship to price
action. Assume that we intend to set up a chart to display the 5‐minute, 15‐minute,
and 1‐hour RSI. We use a 5‐minute interval chart as our basic chart. We first need
to find the multiplying factor (MF) in order to calculate the lookback periods of
the higher timeframe RSIs.■ (^) MF (for a 15 mins interval chart) = 15 min/5 min = 3
■ (^) MF (for a 60 mins interval chart) = 60 min/5 min = 12
So, our 15‐min RSI is obtained by multiplying the RSI standard default look-
back period by 3, giving 14 × 3 = 42 periods. Therefore, a 42‐period RSI on a
5‐min chart will represent a 15‐min RSI. Similarly, an hourly RSI is displayed on a
5‐min chart if we increase its lookback period to 14 × 12 = 168 periods. For oscil-
lators like the MACD, we need to increase all the variables via the MF. We use the
same method to plot multiple timeframe moving averages and other overlays on
charts. For example, to display an hourly 20‐period moving average on a 5‐min
chart, we need to plot a 20 × 12 = 240 period moving average. This would repre-
sent a 20‐period moving average as seen on the hourly chart. It should be noted
that there will be very small discrepancies between an actual 20‐period moving
average on an hourly chart and a 240‐period moving average on a 5‐min chart,
although they both essentially track the same average.
Lagging Indicators
Oscillators, being derived mainly from price, are usually lagging price action. But
this does not mean that leading indications are not possible. Divergence is one form
of oscillator analysis that is regarded as a leading indicator. Another example of
leading indicators is the early reversals that tend to occur in momentum oscillators,
normally reversing or slowing down before price. Horizontally and geometrically
based overlays are also forms of leading indicators. Not all numerically based over-
lays are leading indicators. For example, Fibonacci projection, extension, expan-
sion, and retracement are forms of leading indicators, but moving averages are not.
8.4 Input Data
We may also create new oscillators from other oscillators. For example, if we replace
price by RSI values for each period, we will create what is referred to as a StochRSI
window oscillator. Let C be the current closing price, Ln be the lowest price of the last
n periods, and Hn be the highest price of the last n periods. The raw %K is given by:
%()/()K=−−CLHLnnn