Exploring the Awesome Oscillator | Cameron May | 10-7-19 | Getting Started with Technical Analysis
Good. Morning, and welcome everyone, my name is Cameron May and this morning on a welcome you to our continuing. Discussion. Of getting started with technical, analysis over the course of last several weeks we've. Been exploring. Technical. Indicators. And we've been taking one at a time and breaking it down how are they built and how might they be used last, time we talked about the relative strength index and, today, I promised, to talk with you about the awesome. Oscillator, you know in the world of technical, indicators some might be good some might be bad but only one is truly awesome or, at least that's what it's called right so, let's explore, that let's see how that oscillator, is built will, set a specific agenda here in just a moment but let me first say hello to all of your returning veterans hello there patricia paul dave jay frost dom alfred. Great to see all of you always. Appreciate. Your attendance and your contributions, if you're here for the very first time i want to welcome you as well and if. You're listening in on the youtube archive after the fact i want, you to, enjoy the presentation, but also know that you are invited, to join us if. You want to join us on Monday mornings we start promptly at 11 o'clock Eastern, Standard Time all right finally, for, all of you if you're not following me, on Twitter please do my handle is at CMA, underscore, TDA I tried, to tweet, something every day of the week sometimes, it's a market observation, sometimes it's personal information, just. So you can know a little bit more about your presenters, but, let's get right to it first of all set the stage quick, reminders, of some important information related to risk. In. Order to demonstrate, the functionality platform, we will be using real examples, in today's discussion it's not a recommendation or endorsement of any particular security, or strategy. Because. Any investment, decision you make in your self-directed account, is solely your responsibility. All. Investing, involves risks including risk of loss while this webcast discusses, technical, analysis, other approaches, including fundamental, analysis, may assert very different, views and. Finally for, those of you who use our use, technical analysis, for your options trading here's a quick overview of your Greeks all right but looks, like we have even more chiming, in hello, Alfred, I think I might have already said hello to you but that's okay price is just as nice right mr., Rashi rich. Michelle great. To see you all but, let's set our agenda as I. Mentioned last week and as, we mentioned, as we talked about this. Week last time we talked about the relative, strength index but. Today, we're, going to be talking about something called the awesome. Oscillator. Okay. Some. Of you may have explored, this already others, this may be your initial introduction, I'll try to go to pace that everyone can follow but we're going to start with an application. Discussing. The potential entry signals and then, what. Might be the exit signals using that strategy or that indicator. And we're. Gonna get some current, examples. So, by the time we're done with these three agenda, items I just want you to walk away with an understanding of what the awesome awesome oscillator, is and how it might be applied in an investor's, portfolio, okay. So. Let's, get straight to it I'm, gonna add this oscillator, as we do each week so we should be familiar with this I'm just gonna come up here the Edit Studies icon. I'm. Gonna type in you, know the first few letters of the, indicator. And really there's only one that's called awesome, so, there it is and again whether. It's awesome or not I think is gonna be in in, the results, right for any an individual, investor we're, just talking about what it is and how it works today but there's, the awesome oscillator, let's select that. Let's. Click apply. So. Now we have a visual, of what, we're working with but, let's talk about its construction, now, what does this strike, you as looking very similar, to as, you look at this awesome oscillator, you you. Veterans. What, does it look like it's. A green and red histogram. It moves back and forth it's, range bound. But. Over a center, line a zero, line this should bear, a pretty, not. Striking, resemblance, but not, but more than a passing resemblance to, the MACD, oscillator, yeah it's very much it's, very similar however its construction is significantly, different if you want to go back a few weeks and find that presentation, on the MACD oscillator. You'll. See exactly how that's constructed, you'll see this one is significantly, different. Similar to the MACD it starts, with two moving averages and these are going to be simple, moving averages.
Now. Somewhat, differently than the MACD the, moving, averages that are being compared are the 34 and the. 5. Also. Different. From the MACD is, how. The. Moving averages themselves are constructed not just in time frame but in what time of the day is used. With. The MACD, the, closing, values are used to construct those moving averages, with. The awesome, oscillator, it's, actually. Instead. Of taking just too close, we. Take the high of the day in the lower the angle right in the middle it's the midpoint that, is, used on a daily basis, to construct the, 34, period moving average and, then the 5, period, moving average, but. Really, the the calculation, is pretty straightforward get, the average, midpoint. Over, a period of time for. The 34, 34, days or 34, weeks or 34 hours whatever time. Frame we're looking at on a chart in this case we're using a daily chart and, then. We take the, 5, period, moving average. For. Those midpoints. And we, take the we. Just subtract the 34, from the 5 that's. It so let's say over the last 5 days using. Maybe, wel. As an example maybe. The the over the last 5 days, wel. Has averaged about. $91. At the midpoint now I'm just estimating I don't know and. Let's say over the last 34, days so this is stretching back a little bit further maybe. The average value, is like 89. So. 91-89. Would produce a positive value of 2 as long as the 5 period. Moving average is above, the 34, it produces, a positive, value, for the awesome oscillator, and that, gets plotted, above. The zero line if. The 5 is below the 34, that. Resort will result in negative values, and we'll see a red, histogram. So, that's the construction, and that was quite, a bit quicker than our discussion, of a MACD, construction, right so. Let's talk about the potential, application. Of. The. Of. The awesome oscillator, let me just also check in if, we, can see if we've had any questions, yet. Vintage, souffle, okay you. Say can we look at the specific symbol. You, know what typically, I'll. Prepare. My own symbols, to illustrate a concept but sometimes we'll just throw in a random one every, now and again to see. How this might apply but. How about we. Do get down to application. Once we've applied, this. Oscillator. We wind up with this with, this green and red indicator, so I want to focus on that let's zoom in I'm gonna hide this left column for a moment and. I, want to shift modalities. Here for, just a second alright so. If you will join. Me on. Let's. Pop over here to our bigger, screen and, I. Just want to talk about. How. This indicator, might be used alright. So. As, you'll. Notice very much very similar to the MACD we see oscillations. We hit green. Peaks and red. Valleys, on this, indicator and what, some technicians, will do is they'll, look for those, peaks and valleys as potential. Into, entries. For. Bullish. Entries and for bearish entries, so. Let's, talk about three different potential. Entries and how, about we switch up let's. Come up here using our well. Tower first, thing I want you to do is, make. A note of the general trend of well, tower here, overall. Pretty. Much an uptrend so, we're talking about a bullish. Potential. Entry signal here so, as we switch up our timeframe to get a closer look at, that. Well, tower what. We're going to focus on are these peaks and these, troughs, this is kind of a shallow trough, here here's, a more. Extreme. Peak and what, some technicians will do when, we have an established upward, trend, okay. So the trend generally. Moving higher here. We. Might look at these Peaks and as we dip down from a peak down to a trough. That may be, a hint, of a. Pending, entry what. That may and what that may imply for the chart is that the chart that was going, up may be starting, to pull back, all. Right and this. Oscillator, is a momentum, oscillator just, like the MACD so. What some technicians will do first, signal, is to look for after, that oscillator, has dipped down below, the zero line they'll. Look for a change of color so just remember that a color, change, below. The zero line so, here I want to draw I want to. Emphasize. This little spot right here okay. You'll notice. That. Our zero. Line we started, to get red. Histogram. Bars, penetrating. Down below that zero line that's a hint that's a setup for, a pent a potential signal but, then right here. Okay. We had a red bar followed.
By A green, bar and. That. Is, a. Color change, for. Some technicians. That, represents. An entry signal, so. That's signal, number one, let's. Talk about potential. Signal number two, signal. Number one is. Probably. More traditionally, used for shorter, term entry, signals it's a little bit faster, so this. Is for a trader who's trying to get in and trying, to get back out comparatively. Rapidly. For. Others who are looking to capture more of a trend they, may take a little, bit of a variation on this theme and instead, of getting in immediately, as. Prices. Dip below that. Zero. Line they. Wait for a rise back up and through, now. Notice what that does we had an entry signal here. If looking. For a color change but. If we're looking for entry signal number two which is known as a crossover. That. Is, the. Green bar is transitioning. Back up through our zero. Line here. This. Is going to take a couple more days in some time in some cases it may take a couple more we. So, we're looking for additional, strengthening. It might have been a couple more days a little. More upside. Potential, surrendered, in favor. Of looking for a continuation. Of strength alright. So, we have a color change. I'm. Going to bring up another symbol. Here so let's switch up from well, how. About we bring up but Tiffany, and comfort to, maybe a one a one day chore one your chart, you'll. Notice going left to right Tiffany, more, of a downward orientation. Let, me try that again, there. We go a little, bit of a hesitation. But. You can see more. Of a downward slope, so, we're going to talk about a different, signal but using a bearish. Trade as a potential, example alright. What, I want to focus on is the more recent. Movement. Now. That we've seen that downward, bias, to Tiffany it's not a guarantee that that's going to continue but. What some investors, what some traders will look for is. Again. A variation. On the theme of, a, change in color. So. Notice right about here. We. Had a change in color this, time above. The zero line so. We were talking before about changes. In color below the zero line which are a bullish, indication. This. Is a change of color above, the zero line which, is a bearish, indication, a change. In momentum where. A technical. Trader might look to a take a a, downward. Trade, alright, but. And. Some. Traders will wait they, might hit the pause button on that first. Signal or if. They miss that first signal they, may look to see if that pattern repeats itself notice. As. Tiffany. Came. Down from that peak. It. Just. Headed. Back up for just a moment we. Got another. Set. Of green bars here. Followed. By a change of color so. What. Some technicians, will say is we had a peak, right, here, and we, had a peak right, there. Called. A twin peak, entry. Two. Tops, so. What's happen is the momentum shifted, seemed. To gather a little bit more bullishness. And then, faltered, again, and. That may be seen by some technicians as confirmation. That the, bearishness is, continuing. Downward, okay. So. That's. Our Twin Peaks entry, now let's, clean that up again and just see if you can spot that a little bit more clearly there's a peak, there's. A peak Twin. Peaks and the. Entry might be right, as we get that, second. Red. Bar. Right there following. That second peak.
Alright. So what. We're doing here is looking at things from both sides, of the coin because this is one of those indicators, that can be used for bullish entries or for, bearish entries so. Now let's, talk about exits. What. I want to do here let's, switch it back up and we're. Just gonna have a look at. When. We might get out of these sorts of traits so, I'm going to leave it up on a pretty, broad view, of it of the screen and. How. About we just take this, entry as our, first example okay. So we had. Twin. Peaks. There's. A peak there's. A peak and. A. Trader may take a bearish. Entry, they, might do that using stocks or options and, by the way. Okay. Says it sounds like. Keith. Says that I was breaking up making it made a nice little Star, Trek reference thank you Keith I can appreciate that well. The sound is coming through nice and strong now. Vintage. Says are the descending, bars signaling, weakness you got it yeah, so as we see a green. Peak, here, followed, by a transition. To red it's a change of color that's. A hint of a bearish. Entry and then. We're followed by a green, peak followed, by a red, so. A second, change in color all. Right so let's just suppose that a trader takes and tree on this, when. Might we exit, well, there are a couple of different ways the trader might employ their own technical, analysis, their own perspective, of how this stock is trading at the moment and. Set. Up a price target so. In this example how, about we use. The. Lowe's. Fairly. Recently established as a potential. Exit. So. Again we're. Looking at a bearish, trade. So. This is depending on the stock price dropping. To hit the target, so. One thing that we might do is just use the support level as a target, just like we did using our MACD and if you might if you want to go back and have a look at those archives you. Can revisit this now I also have some. Suggestions. Here if you, like these sorts, of indicators, and you like to get a little bit more a, little bit deeper, into your technical, analysis, we do actually have a webcast. Every. Friday, that's, called advanced charting, techniques it said I believe. Yeah. Two o'clock Eastern Standard Time that's taught by Pat Moll you may want to check that out. All. Right but that's one way that we might establish a target a second, as you might imagine is if, the, if, the oscillator. Itself. Presents. A sign. Of strength. So. In. The. Case of a trader who has taken a bearish, trade they, may look and let me just try, to illustrate this, let's, suppose the.
Oscillator, Is being has been coming down and, down and down and then, it hits a low and starts to rise again, and we, get a change from, a green, candle, to a red candle right. Down here, that. May be a signal for, a trader to close, up an established. Bearish trade, alright. So. Those are some examples of bullishness. And bearishness time, permits I have, let's, look at maybe. A. Bullish. Example, of Twin. Peaks alright, what if we were to look at maybe, WM. So. Here's waste management, if we. Look at a longer-term chart let's, switch this to a one-year daily. How, does that look to you, do. You think a technical, trader. Might be able to make an argument for bullishness on the stock yeah they might be able to do that but. If we zoom in on more recent price, activity. Here's. Our awesome, oscillator, hitting. A low there's. Our first color, change right here an initial. Color change as we're, moving into maybe the third week of September, it. Rallies, up and then we get a few more red bars. There's. A second, color change what do we call that that. Is known as Twin Peaks even, though I know some of you are probably saying that's, not a peak that's a valley yeah, we, don't call it a Twin Valley it's called Twin Peaks even if it's going down. All. Right so. So, really, on about October, first the, technician, may have recognized, this as an entry signal so. Maybe getting in here, now, as of today we're a little bit later to the game but really the price is only net gone up maybe 50. Or 70 cents. So. On a stock this price is 115 dollars does that mean that we've missed the signal entirely maybe, not. So. Let's, see if we can apply what we just learned using our Tiffany example, to, waste management, where, might we get out of this trade. Well. First. Potential exit, signal might. Be just to look at old previous, resistance. An old price ceiling. In this case so. That might be in the neighborhood of 121. That's. For a technician who might who likes to use their own analysis. Mixed. With some of these some. Of these more automated, processes. Like using an oscillator, a. Second. Signal might be as we, see strengthening. Of the chart. If. It rallies up above that zero line and then. We we can let's. Say we hit our final, green. Histogram. Bar here followed. By a red a change, of color, might.
Be Our signal to exit all, right so we do have some questions some questions here, so Steve, says how is this different from MACD so, Steve what you'll probably have to do is watch both videos but, you'll see the construction is actually significantly different, the interpretation. The fairly. Similar. Steve. Says is there a script available for this indicator so I'm not really a script necessary, it's just built this way. Okay. To. Add this indicator, to do everything that I've done today there's. Really not a need for a script you. Just pop up here click. On your edit studies and. Type. In a. W. Or a w e or type out the whole awesome, oscillator, that's, where you would find it. Okay. Now. If. You really want a script that you can tinker with and you might want to pop, into Ken Rosa's. Webcasts. On scripting. Or reach out to Ken. Ken. Just has a huge. A. Huge toolkit. Of scripts. That he has written, so. You may have something along these lines. Jeff. Asks do the heights of the bars have, any significance. Jeff that's another very good question and some technicians may look only for extremes. As a potential, filter so let's zoom back out here so. How about we bring up yet, another example, what, if we were to go - I. Don't know Yum Brands okay. So here's Yum Brands. Making. Higher highs making, higher lows here. We have another. Apparent. Twin. Peaks signal. But. Some technicians may look for bars. Rising. -, and. They can set their own thresholds, might, be - might be for might be higher. To. The downside might be one might be - what might be three might be lower so it's. Just going to be relative, to the stock itself, that might be the, easiest way to establish, a threshold. Metric, for how high or how low we look before we begin looking for entry signals, but. Specifically, there's not necessarily a requirement for that. Vintage. Souffle says are the bars beneath, the line lower highs and lower lows and vice versa, not, necessarily. Nope. They don't necessarily, indicate that the. The height, of the bars is. Really just determined, by the distance, between the. Five period moving average, and the 34 period moving average in. The case of a bullish, distance, or the. Depth of the bars is the distance that, the five period isn't falling below the 34, but remember it's not just a traditional moving. Average it's using the midpoints. Of candles rather than the closing values. All. Right well you know what we've actually been, through. Just. About everything that I had prepared to cover today. We. Had three items on the agenda we. Wanted to talk about the construction of the awesome oscillator its construction is I would say somewhat I would say almost say considerably, easier than the Mac beep but. It's visual, presentation, and its, interpretation. Pretty. Similar to a MACD. We've. Discussed potential entry signals and potential. Exit, signals and we've, looked at some current examples, what I wanted to do is close.
The Circuit, make. Sure that we go, from theory. Straight, to application. So you walk away with an understanding of not only how this thing is constructed, but how it might be applied to a portfolio. All. Right that'll. Do it everybody thanks for joining me today if, you would follow, me on Twitter at CMA, underscore. TDA, I'd love to have you there. I'll. Try to post try to tweet something every day of the week. Coming. Up next we, have a little, bit of a break and then we're gonna hear from Pat Mullaly he's going to talk with trading. With ETFs. So. That's coming up at 12:30 Eastern Standard, Time as. Of next week we. Had a question that popped, up in one of my other discussions. Someone asked about the ADX. Indicator. I thought, well let's explore that let's take it let's, take a peek at the ADX indicator, so I said that I would dedicate. A half-hour discussion to that indicator, and I'm gonna do that next week so, I'm looking forward to that discussion you're invited to join me. As. For now it might be time to get, some application, if this is the first time you've ever seen the awesome oscillator. You. May want to go to your paper money account I would suggest you get maybe three stocks, apply. That awesome oscillator to your chart and then, look if you look to see if you can find one of each. Of the three entry. Signals that we discussed, a color, change the, crossover, and Twin. Peaks and see. How that plays out all. Right very, good re thank, you Paul. Keith you're welcome, everybody. Thanks for stopping by a quick. Reminder of the risks associated if you're investing risks are real we did use real examples, in today's discussion it's not a recommendation or endorsement of those securities, or those strategies I'll. Set you loose go enjoy Pat's discussion. Come. Back and see me again for a discussion of the ADX, indicator, next week but. Of course you can join me in any my regularly scheduled, sessions between now and then but hey whenever I see you again until that moment arrives I want to wish you the very best of luck happy. Investing bye-bye. You.