Page 56 - NEW FOREX FULL COURSE

FOREX TRADING COURSE FOR BEGINNERS

PLOTTING THE OSCILLATOR
Let's look at this concept using a simple oscillator expressed in terms of the price today minus
the price "x" number of days ago — let's say 10 days ago, for example. The easiest way to
illustrate the interaction between price movement and oscillator movement is to take a straight
line price relationship and plot the oscillator points used on this relationship, as shown on this
page's chart.

In our illustration, we begin on Day 10 when the closing price is 48.50. The price 10 days ago on
Day 1 is 50.75. So with a 10-day oscillator, today's price of 48.50 subtracted from the price
10 days ago of 50.75 results in an oscillator value of - 2.25, which is plotted below the zero line.
By following this procedure each day, we develop an oscillator curve.

The oscillator curve developed by using this hypothetical situation is very interesting. As the price
moves down by the same increment each day between Days 10 and 14, the oscillator curve is a
horizontal line. On Day 15, the price turns up by 25 points, yet the oscillator turns up by 50 points.
The oscillator is going up twice as fast as the price. The oscillator continues this rate of movement
until Day 23 when its value becomes constant, although the price continues to move up at the
same rate.

56