• Skip to primary navigation
  • Skip to main content
  • Skip to footer
Daniels Trading

Independent. Objective. Reliable.

Top Navigation

  • Open a Futures Account
  • Sign Up
  • Log in
  • 1.800.800.3840

Primary Navigation Menu

  • About
    • Who We Are
    • Services
    • Careers
    • Risk Disclosure
    • COVID-19
  • Trade
    • Broker-Assisted
    • Self-Directed / Online
    • Request Pricing
  • Hedge
    • DanielsAg Mobile App
    • Ag Marketing Plan
    • WASDE Analysis
    • Grain Resources
    • Livestock / Dairy Resources
    • Hedging Videos
    • Request Pricing
  • Invest
    • Automated Strategies
    • Managed Futures
    • Request Pricing
  • Advisories
    • GENERAL / FUNDAMENTAL
      • DT Newsletter
      • Insider Market Advisory
      • Turner’s Take Newsletter & Podcast
    • TECHNICAL ANALYSIS
      • The Cullen Outlook
      • Data Feed Trade
      • Jarboe Trading Journal
      • Trade Spotlight
    • AG MARKETING
      • Cattleman’s Advisory
      • The Swine Times
      • Technical Ag Knowledge
      • This Week in Grain
      • Turner’s Take Ag Marketing
    • THIRD-PARTY RESOURCES
      • CFRN
      • Moore Research Center, Inc. (MRCI)
      • OptionWorks®
      • TASMarketProfile.com
  • Education
    • CME Group Resource Center
    • Small Exchange Resources
    • Guides
    • Frequently Asked Questions
    • Order Entry Handbook
    • Webinars
  • Blog
    • Futures 101
    • Ag Marketing
    • Tips & Strategies
    • Trading Advisories
  • Resources
    • Trading Software
    • Quotes and Charts
    • Futures Calendars
    • Contract Specifications
    • Margin Requirements
    • Futures Calculator
  • Accounts
    • GAIN Capital Futures
    • StoneX
  • Contact
 

How to Track Oscillators

July 18, 2017 by Daniels Trading| Tips & Strategies

The current incarnation of the futures marketplace is a digital environment conducive to enhanced pricing volatilities and low-latency trade executions. In such a dynamic atmosphere, a method of interpreting price action on-the-fly is a necessity. As a result, technical analysis, a study of price itself, has become the go-to reference in crafting astute trading decisions.

One of the most popular types of technical indicators is an oscillator. An oscillator applies mathematical formulas directly to price action to determine future market behavior. This task is accomplished through actively quantifying the strength of current pricing momentum and determining whether a security is being actively overbought or oversold.

Types of Oscillators

Oscillators are broken into two basic groups, each with a unique application and function:

Centered Oscillators

Centered oscillators measure pricing momentum through rotating above and below a centralized baseline. In simplest terms, if an oscillator is above its baseline then momentum is positive; if below, momentum is negative. Centered oscillators are particularly useful in determining the relative strength or weakness of a trend and identifying potential breakouts.

Moving Average Convergence Divergence (MACD) is a popular centered oscillator because it fluctuates above and below an established baseline of zero.

Moving Average Convergence Divergence (MACD) Centered Oscillator Example

Source: Futures Source

Banded Oscillators

In order to determine whether a security is presently overbought or oversold, banded oscillators establish fixed or variable upper and lower bands. As the oscillator approaches the upper band, the security is becoming overbought — and conversely oversold when nearing the lower band. Banded oscillators are particularly useful in reversal and range trading strategies because they give a concrete level as reference for lagging momentum and a potential change in price direction. The Relative Strength Indicator (RSI) is a frequently used banded oscillator that examines price on a fixed scale between zero and 100.

Relative Strength Index (RSI) Banded Oscillator Example

Source: Futures Source

Tracking an oscillator in real-time is a relatively straightforward task. Technology has seamlessly integrated mathematical computation into a user-friendly interface. For instance, when using the MACD or RSI, important levels are calculated and visually represented automatically. If the MACD of a security is in positive territory, it is graphed and visible above the baseline; if the RSI is dramatically negative, it is in clear proximity to the lower band of zero.

Interpretation and Trade

An oscillator is a derivative study, meaning its results are based upon an external factor, price action. It is the scrutiny of price itself that a signal for market entry is created or insight into active trade management is gained. Understanding that the primary goal of an oscillator is to quantify the momentum driving price is a key aspect of successfully incorporating the tool into a trading plan.

Here are a few concepts relevant to oscillators that many traders use when tailoring market entry and exit decisions:

Extremes

As in banded oscillators, when values approach established upper-bound and lower-bound levels, pricing momentum may be prone to stagnate or reverse direction. This phenomenon is often seen as a signal to exit an open position or consider entering the market in a counter-trend fashion.

Oscillators Extremes Example

Source: Futures Source

Crossover

Crossover strategies typically apply to centered oscillators, as values cross over and under the established baseline. A crossover point may indicate growing bullish or bearish strength in pricing momentum, a possible signal of a potential breakout. Crossovers also pertain to the concurrent use of multiple oscillators, creating a signal for market entry or exit upon their intersection.

Oscillators Crossover Example

Source: Futures Source

Divergence

Divergence is present when price and a chosen oscillator begin to move in opposite directions. Divergence may be either positive or negative, and traders often viewed it as the exhaustion of a trend or pending change in market direction. Positive divergence occurs when the value of an oscillator increases while price decreases, and negative divergence arises in a case of increasing price in the face of a weakening indicator. In each instance, traders can use divergence as a signal to either enter or exit a market based upon changes in pricing momentum.

Oscillators Divergence Example.png

Source: Futures Source

Keep in mind that oscillators are only one kind of technical indicator able to provide insight into market behavior. Although they may be effective in quantifying current pricing momentum, when implemented in isolation, they are capable of leading traders astray. Whipsaw, consolidating, or explosively trending markets often create an abundance of “false” signals, queuing costly trading decisions.

Oscillators are best used in conjunction with other technical indicators, as well as being accompanied by an extensive understanding of market fundamentals. Within the context of a comprehensive trading plan, the use of oscillators can be a valued tool for achieving profitability in the marketplace.
Schedule a Consultation with Daniels Trading

Filed Under: Tips & Strategies

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

Subscribe To The Blog

Footer

Site Navigation

  • Frequently Asked Questions
  • About Us
  • Customer Reviews
  • Contact Us
  • Futures Blog
  • Open a Futures Trading Account
  • Media Resources
  • Fund Your Account
  • Legal Notices

Contact Us

Daniels Trading
100 South Wacker Drive, Suite 1225
Chicago, IL 60606
+1.312.706.7600 Local / Int'l
+1.800.800.3840 Toll-Free
+1.312.706.7605 Fax

Connect with Us

Trustpilot

Copyright © 2021 · Daniels Trading. All rights reserved.

Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

  • Risk Disclosure
  • Privacy Policy
  • California Residents Privacy Notice
  • Terms of Use
  • Back to top