the hAnDbook of teChnICAl AnAlysIsAs we can see from just a few forms of analysis presented in the preceding
charts, there are many ways to view the action of the markets, depending on the
context of the analysis employed. For example, if the analyst is more interested in
viewing and understanding the action of price within the context of over‐reaction
or price exhaustion in the markets, he or she may opt to apply technical studies
that track levels or areas of potential over‐reaction or price exhaustion. Technical
studies that tract such behavior include linear regression bands, Bollinger bands,
moving average percentage bands, Keltner and Starc bands, areas of prior support
and resistance, and so on. Alternatively, if the analyst is more interested in viewing
and understanding the action of price within the context of market momentum,
he or she may instead opt to apply breakout analysis of chart patterns, trendlines,
moving averages, and so on. As long as the reason for using a particular form of
analysis is clear, there should be no confusion as to what the studies are indicating.
Contradictory, Confirmatory, and Complementary Signals
There are many instances when two oscillator signals are in clear and direct opposi-
tion with each other. This is inevitable, as each oscillator is constructed differently.
The mathematics underlying each oscillator varies with the purpose it is designed
for, and in most cases, it involves the manipulation of price, volume, and open inter-
est data. A few reasons for conflicting oscillator and indicator signals are:
■ (^) The mathematical construction of each oscillator or indicator is different.
■ (^) Each oscillator or indicator tracks a different time horizon.
■ (^) Two identical oscillators may issue inconsistent readings due to missing data
on one of the charting platforms.
■ (^) Two identical oscillators may also issue inconsistent readings due to variations in
the accuracy, quality, and type of data available on different charting platforms.
fIgure 1.15 Volatility Band, Volume, and Overextension Analysis on the Same Chart.
Source: MetaTrader 4