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Dinesh,
What I was describing was the concept of a pivot point. An oscilator pivot
point is the price at which the OSC will change direction and flip up (if
it's currently heading down) or flip down (if it's current heading up).
Linda Raschke has used this concept on both a short term (2-3 day) and
intermediate term (3-10 days) basis to determine when to exit and enter a
market. In her book "Street Smarts" she describes a process of trading the
S+P on a 2 day swing using pivot points with a 2 day ROC. Going into a day
of trading she has a pivot number in hand. If the market closes at a price
that flips the OSC in the opposite direction it currently is trending then a
position is established in the direction of the close. For example, if the
ROC oscillator is heading down and say her pivot number is above where the
market closed the previous day, then the market must close above that price
to flip the OSC in the opposite direction (up). If the market cloes above
that pivot price and the osc flips up, a long position is established. The
same is true to the downside where a short position is established if the
price falls below the pivot price and flips the oscillator down.
For simple equations like the ROC, the next day's pivot price is easy to
calculate. Take the ROC equation and solve for the next day using rules of
algebra. This can get daunting however for larger equations and is more
prone to error. In these cases I have found it easier to use an iterative
approach to look for the price at which the slope of the OSC goes to zero.
That 4 step process I outlined in the original letter was the basic approach
I take when looking for a pivot number in more complex equations. It's
relatively easy to program. It involves no more than plugging in fictious
prices (prices for tomorrow) to OSC formula and checking to see when the
slope of the OSC goes to zero.
Of course while there are many times when price will follow the oscillator
(OSC), osccsionally the price will not follow the OSC right away. I have
found in my trading that markets do what they're supposed to do but often
not do them when you would expect. So if an Intermediate term OSC flips
down from overbot condition, the price still may rise. But this is an
indication of waning momentum and the market should be monitored closely for
a daily pattern signal that fades the direction of the OSC. Learning the
characteristics of an OSC is an important part of using a methodology like
this.
Regards,
Brian.
-----Original Message-----
From: Mr. Dinesh R. Thakkar [mailto:drt@xxxxxxxxxxxxxxxxxxxx]
Sent: Friday, November 13, 1998 8:11 PM
To: bnm03@xxxxxxx
Subject: A request.
Hello Brian,
<< In the code I posted yesterday concerning pivot points in OSC for
tomorrow,
I left out a critical piece of info (adding c[1] to the part in
parentheses).
----- SNIPPED -----
>4. Any price above (if OSC line going down) /below (if OSC line going up)
>this value should flip the OSC. >>
Thank you very much for sharing the above with the list.
I read your email with great interest. I would be very much obliged if
you could kindly help me out in understanding this a bit further.
I have not clearly understood the working yet. Could you please help me
a here a bit? Also, can we do the same thing with moving averages and
complex indicators like stochastics?
Thank you for helping,
Regards,
Dinesh.
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