Page 57 - NEW FOREX FULL COURSE

FOREX TRADING COURSE FOR BEGINNERS

On Day 29, another very interesting thing happens. The price levels out at 51.00, yet the oscillator
begins to go down. If the price continues to move horizontally, the oscillator will continue to
descend until the 10th day, at which time both the oscillator and the price will be moving
horizontally

Note the interaction of the oscillator curve and the price curve. The oscillator appears to be one
step ahead of the price. That's because the oscillator, in effect, is measuring the rate of change
of price movement. Between Days 14 and 23, the oscillator shows the rate of price change is very
fast because the direction of the price is changing from down to up. Once the price has bottomed
out and started up, then the rate of change slows down because the increments of change are
measured in one direction only.

THREE PROBLEMS
The oscillator can be an excellent technical tool for the trader who understands it is inherent
characteristics. However, there are three problems encountered in developing a meaningful
oscillator:
1. Erratic movement within the general oscillator configuration. Suppose that 10 days ago
the price moved limit down from the previous day. Now, suppose that today the price
closed the same as yesterday. When you subtract the price 10 days ago from today's price,
you get an erroneously high value for the oscillator today. To overcome this, there must
be some way to dampen or smooth out the extreme points used to calculate the
oscillator.

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