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A Handbook of Technical Analysis: The Practitioner's Comprehensive Guide to Technical Analysis by Mark Andrew Lim

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CHAPTER 8

Window Oscillators and Overlay Indicators

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

  • Understand the significance of oscillators and indicators and how to use them to forecast reversals and breakouts in the market
  • Describe the difference between overlay indicators and window oscillators
  • Identify and differentiate between various types of overlay indicators and how chart scaling affects each type of indicator
  • Set up multiple timeframe charts to better observe price and indicator action

Oscillators and indicators have fascinated traders and analysts since the first average was created. Oscillators and indicators can help reveal underlying strengths and weaknesses of price action, which would not have been obvious otherwise. In this chapter we will learn about the construction and proper application of oscillators and various overlay indicators to help better forecast potential reversals and breakouts in the markets.

8.1 DEFINING INDICATORS AND OSCILLATORS

Classification of Oscillators and Indicators

Indicators are subdivided into two categories:

  1. Overlay indicators: Overlay indicators are plotted on the same chart as price action, as well as on window oscillator action. They represent barriers to price or window oscillator action, that is, they provide support and resistance at various price and oscillator levels. It should be noted that window oscillator action plotted on the price chart does not represent a valid or meaningful overlay ...

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