Oscillator Analysis
Oscillator analysis is most useful in the following three situations:
· Readings reach above the extreme high area suggesting that the market has reached overextended prices and a correction or a reversal to the downside may be imminent. Similarly, readings below the extreme low area of the oscillator suggest that prices have reached overextended low prices and an impending correction to the upside may be expected.
· A crossing above the midpoint level signifies an upward direction whereas a crossing below the midpoint signals a downward direction.
· A divergence between the oscillator and price signifies a warning for an impending correction or reversal.