Window Oscillators and Overlay Indicators
ATR is a simple moving average of true range. It is used as a means of sizing
a stoploss. Stopsizes are usually some multiple of ATR.
The ATR has the following characteristics:■ (^) An increase in price volatility increases the value of the ATR
■ (^) Falling ATR values in an uptrend is a bearish indication
■ (^) Rising ATR values in an uptrend is a bullish indication
■ (^) Falling ATR values in an downtrend is a bullish indication
■ (^) Rising ATR values in an downtrend is a bearish indication
■ (^) High or extreme values of ATR usually accompany price peaks and troughs
in the market
Figure 8.21 displays true range action on the daily chart of Gold. The look-
back period is set to one period, indicating that we are observing true range rather
than the average true range. We see true range signaling a correction in Gold every
time it surpasses the historically overextended level.
the stochastic Oscillator
Created by George Lane, the bounded stochastic oscillator tracks the relative po-
sition of the current price or latest close as a percentage of the price range over
a specified number of periods, measured from the lowest low of the range. It is
called the raw %K. See Figure 8.22. We see that the closing price is 83.3 percent
of the range over a lookback period of one bar. The raw %K is usually defaulted
to a lookback period of 14 bars. A 14‐day lookback period was originally used to
track the monthly commodity half cycle.
Let C be the closing price, Ln be the lowest low of the last n periods, and Hn
be the highest high of the last n periods. There are two representations of the
fIgure 8.20 MACD Overbought Levels Signaling Potential Tops on the 4‐Hour
Chart of USDJPY.
Source: MetaTrader 4