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Harley,
Thanks for your well documented rationale. Keep up the good work. I
believe I actually understand it <G>. Now to add my two cents for what
they are worth (probably not much). In the past, I've tried to use
different oscillators for buy and sell signals and even used large binary
waves of various combinations of indicators. I agree with you 100% that
oscillators can give good entry signals in trading markets or in the
direction of the trend even during strong trending markets. They can also
give early indications by divergence for exit signals (sometimes way to
early <VBG>) in strong trending markets. However, they tend to give way to
many early or false signals for exit signals or entries against the
direction of the trend. That doesn't mean you should ignore the
oscillators, just place more emphasis on trend channels during strong
trends. That's why I now place most of my emphasis on trend channels which
are easy to see. However, I do feel better when entering or exiting a
position if I also get a MetaStock System Test signal that agrees with my
decision <G>.
Jim
----------
> From: Harley Meyer <Harley.D.Meyer-2@xxxxxxxxxx>
> To: metastock-list@xxxxxxxxxxxxx
> Cc: kobet@xxxxxxxxxxxxx; Melesse.Ayalew@xxxxxxxxxxx
> Subject: Convergence/Divergence->Stoch & Trends- TA bible isn't correct.
> Date: Saturday, August 30, 1997 2:43 PM
>
> Sorry fellows but a oscillator can be extremely importatant in a trending
> market.
>
> I will comment on the stochastics. But for the most part all oscilators
have
> the same property of convergence & divergence
>
> If a stock is trending upwards usually it bounces up & down a bit along
the
> way. From the top of the channel to the bottom or the middle, etc. Hence
it is
> OSCILLATING.
>
> The problem occurs when you can't find correct number of days to
correctly
> match up with the oscillations of the trend. But if you can't see the
math
> behind the formula it makes it tough. In the past the best way to
describe the
> Williams %R & a stochastics is with the bead on an abacuss analogy. One
end
> represents the lowest low value over some time period. The other end the
> highest high value. The close is the bead on the abacuss. The indicators
are
> the abacuss itself.
>
> As the close moves closer to it's previous highest value, the oscillator
goes
> into the overbought region. But that is ok. As the attached charts will
show.
> The stochatics has unique property for measuring both a trend & the
> oscillation.
> The Oscilattion occurs during the overbought/oversold conditions. The
trend is
> measured in the convergence or divergence.
>
> NOTE: Convergence means that two trendlines would meet & cross at some
point if
> both were extended to the right. Divergence means that two trendlines
would
> NOT meet & cross at some point if both were extended to the right.
>
> The charts will show this.
>
> Sent seperately will be several .gifs to show what I mean.
>
> GM1.gif & GM2.gif- General motors.
>
> The GM1.gif shows the first move up.
> The GM2.gif shows the 2nd move up.
> Comments are made on the chart.
>
> The oscillator is a superpostion stochastic. In general this stochastic
reaches
> oversold at the bottom of the channel & overbought at the top of the
channel.
> Two charts are needed to show the channel progression.
>
> Here is the formula:
>
> (Stoch(2,2)+Stoch(3,3)+Stoch(4,4)+Stoch(5,5)+Stoch(6,6)+Stoch(7,7)
> +Stoch(10,10))/7
>
> Then add your 80, 20 lines.
>
>
> The next chart CISCO1.gif will show a "Bearish Divergence". Here I am
using a
> 14 day RSI.
>
> On the chart-
> High 1- represents the end of the channel.
> High 2 represents the beginning of the channel.
> Low 1 - is the lowest low in the channel.
>
> The chart is marked with two 1s. They correspond to the trend lines from
high
> to high of both the security & the 14 day RSI. Both start & stop at the
same
> point in time.
> Since the RSI is trending lower, while CSCO is headed higher. We say that
a
> "Bearish Divergence" has occured.
>
> REMEBER: Convergence means that two trendlines would meet & cross at some
point
> if both were extended to the right. Divergence means that two trendlines
would
> NOT meet & cross at some point if both were extended to the right.
>
>
> Also notice points 2 & 3 on the chart. This also trends lower. There is a
dark
> red horizantal line that has the same height as the bottom of the RSI at
point
> 3.
>
> The horizantal line serves as support. If the RSI falls below this
horizantal
> line the "Bearish Divergence" is confirmed. This is called a "Failure
swing."
>
>
>
>
> The last chart is ARSW1.gif. This shows a "Bullish Convergence".
>
> Trend line 1 & trendline 2 show the convergence.
>
> 3 is the channel breakout & 4 is the failure swing.
>
>
> Harley Meyer
> meyer093@xxxxxxxxxx
>
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