How To Read An Oscillator In ThinkOrSwim

[pupu]

RE: Clarification on "Delta of Price" vs "Variance in Price" mentioned by Mobius:

“The author suggested the purest way to measure momentum was by using delta of price (derivative of price) rather than variance in price in order to eliminate the inherent volatility in price.”

From my understanding:

Delta of Price:

• Change in Price is represented by discrete 1, 0, -1
• The discrete Change in Price than taken derivatives of EMAs

Variance in Price:
- Momentum = price - price[length]

Are the difference between these two calculation methods in terms of indicator/mathematic significance and meaning? Why use each at what kind of scenarios/indicators?

 

[MerryDay]

There are three conditions to observe when using Oscillators.

1. Zero-crossing (Delta of Price): bullish when crossing above midpoint (the midpoint is 'usually' zero but can also be 50 or something else).
2. Signal Line Crossing (Variance in Price): bullish when crossing from below to above the oscillator's moving average.
3. Direction Change: bullish when below midpoint and starts ascending,

They are generally used together.
Direction Change Trading is the most traditional use of oscillators. Crossing above Oversold and Crossing below Overbought.
Zero-crossing is used to verify that the triggers from your other indicators now have momentum.
Signal-crossing, when oscillator crosses its average, is a sign that a change is a-coming but only works when not in chop. (not to be used on the lowest timeframes due to lag).

No indicator can be used in isolation or on a single timeframe. Trend & momentum indicators require confirmation on higher timeframe.
You can stack the deck in your favor with correlation of trend to market indices.

The only way you will know which works best for you is to play with the settings and see how the oscillator lines up w/ your strategy and with your other indicators.

On a lower timeframe you might look for Zero-crossing and then
On a higher timeframe, confirm Signal-crossing.

To determine if an oscillator brings value and how you will trade it, analyze it over different timeframes, across history and with multiple instruments.

Pros: When a stock trends, all oscillators can provide significant profitable entry / exit zones.
Cons: When a stock is ranging, oscillators are rife with false signals.
The Catch: There is no way to know at time of trigger whether your instrument is going to range or trend so stop loss / portfolio management is the most important aspect of trading with oscillators.

Backtesting of Oscillators is not necessary. Results for all oscillators are approximately the same. They are highly successful when a trade trends and not successful when ranging. The use of multiple-times-frames is not assurance that a trade will trend or range. However, signals are more accurate on higher timeframes (less noise).

More reading:
https://thepatternsite.com/Oscillators.html

Success rates can be increased by the addition of non-collinear studies

 

[pupu]

Thank you MerryDay!

A quick clarify on "Signal Line Crossing (Variance in Price)" - When you mean "signal line (its average)", do you mean in the classic RSI, the lines of overbought(70)/oversold(30) are the signal lines?

Or do you mean taking a Moving Average of the RSI value, and the MA is the RSI's signal line?

 

[MerryDay]

Thank you MerryDay!

A quick clarify on "Signal Line Crossing (Variance in Price)" - When you mean "signal line (its average)", do you mean in the classic RSI, the lines of overbought(70)/oversold(30) are the signal lines?

Or do you mean taking a Moving Average of the RSI value, and the MA is the RSI's signal line?

A signal line is always the moving average of the oscillator. When an oscillator 'speeds up' and cross over its average, it denotes a positive change might be a-coming.
As the oscillator slows down, it crosses below its average, a negative change, this way comes.

While many of the oscillators will offer a plot of the moving average, the ToS RSI does not. But it doesn't mean that it is not possible to do. We have several, here is one: https://usethinkscript.com/threads/moving-average-crossover-rsi-indicator-for-thinkorswim.185/

Overbought and Oversold denote whether it is above or below its intrinsic value

 

[JWH]

Let's say I have an indicator such as RSI, CCI, Stochastics, etc. and would like to add a configurable moving average of that indicator in the same pane. All of the averages I've been able to find seem to be locked onto price and offer no other options.

You can do this in your sleep in other programs, but so far I've been unable to work out how to do it here.

When I searched, one person said to "drag and drop", but when I do that I only seem to have two independent indicators in the same pane. I also took a crack at coding it from another suggestion, but it didn't work.

Is there a link to good instructions on how to do this? I've even looked in the OneNote archives, but if it's in there I missed it. I have to believe others could also benefit from having this readily findable on the site.

I'm willing to try Thinkscript given a working example. Even if there's an existing indicator from which I could extract the basic code, it would be a good start.

Thank you!

 

[MerryDay]

Let's say I have an indicator such as RSI, CCI, Stochastics, etc. and would like to add a configurable moving average of that indicator in the same pane. All of the indicators I've been able to find seem to be locked onto price and offer no other options.

You can do this in your sleep in other programs, but so far I've been unable to work out how to do it here.

When I searched, one person said to "drag and drop", but when I do that I only seem to have two independent indicators in the same pane. I also took a crack at coding it from another suggestion, but it didn't work.

Is there a link to good instructions on how to do this? I've even looked in the OneNote archives, but if it's in there I missed it. I have to believe others could also benefit from having this readily findable on the site.

I'm willing to try Thinkscript given a working example. Even if there's an existing indicator from which I could extract the basic code, it would be a good start.

Thank you!

Many of the ToS oscillators have the oscillator moving average already defined, IE: CCIAverage, StochasticMomentumIndex, MACDTwoLines, OnBalanceVolume_modified, etc.... You can click on any of them to see examples of syntax for oscillator moving averages.

If you have an oscillator w/o an ma definition, you will find this forum probably has a version with it's moving average, IE RSI .

The plot of an oscillator's moving average it is a fundamental identification of an increase in momentum. oscillator technical analysis
An excellent addition to your favorite oscillator.

The general format is

input AvgType = AverageType.EXPONENTIAL ;
input AvgLength = 30 ;
def YourOscillator = whatOscillator?? ; #put the oscillator plot name HERE
plot Oscillator_MA = MovingAverage(AvgType, YourOscillator,  AvgLength);

 

[TPTrades]

I would love to test out the indicators functions. What do the red zone and green zones represent?

 

[MerryDay]

I would love to test out the indicators functions. What do overbought & oversold zones represent?

All "bound" oscillators have upper and lower boundaries.
Which are called
"overbought" upper boundary
"oversold" lower boundary

1. Definition: Overbought and oversold refer to the relative extreme levels reached by an asset's price.
2. Indicators: Common indicators like the TMO, and the Relative Strength Index (RSI) and Stochastic Oscillator are examples of bound oscillators with overbought and oversold boundaries.
3. Interpretation:
   • Overbought: When an asset's price has risen and is now considered overvalued relative to its recent average. No entry is recommended if the oscillator is in the overbought zone.
   • Oversold: When an asset's price has fallen and is considered undervalued to its recent average. No entry is recommended when the oscillator has fallen into this basement zone.
   • The textbook entry zone is when the stock is above the oversold boundary but below the midpoint and is trending upwards.