An extremely wide range of tools and hundreds of available graphs is what made TradingView the most popular chart provider on the market. Apart from trend indicators, Trading View also offers several oscillators – technical analysis tools that point to oversold and overbought conditions when there is no clear trend.
Oscillators are usually displayed in the bottom part of a graph in a separate window and consist of a set of values that oscillate in a set range. In a previous article, we have already examined the most popular indicators of overbought and oversold areas: RSI, Stochastic, Chaikin Oscillator etc. Today, we will look at lesser known instruments.
Oscillators have several indisputable advantages: They provide early signals, are easy to read, and are flexible. On the other hand, during a transition to a trend, oscillators give a lot of false signals, so we recommend using them together with trend indicators, such as ATR (average true range), which allow you to track market volatility.
Relative Vigor Index – RVGI
The relative vigor index (RVGI) is based on the tendency of asset prices to close higher than they open during bullish periods and vice versa during bearish periods. RVGI measures the strength of a current trend and forecasts whether it will last.
RVGI includes two lines, red and green. Their relative position points to either a growing price (if the green line passes above the red line) or a falling price (if the red line passes above the green line). Parallel lines indicate that the current trend will continue. A crossover points to a potentially profitable opportunity:
- The green line crosses above the red line – buy
- The red line crosses above the green line – sell
The indicator also has a zero reference line, and a crossover above this line is a signal to buy, while a crossover below the zero line is a signal to sell (just like in MACD). Often, traders use RVGI as a filter and only place buy orders when the oscillator is above the reference line.
A default period value of 10 is considered the best for use with an hourly chart, while for shorter trading periods, the value should be reduced. However, depending on the asset and the objectives (filtering deals or searching for entry points), the optimal period value of the indicator can vary.
The RVGI works exceptionally well when paired with the simple moving average (SMA), which points to the trend direction, while RVGI helps find the best points for opening and closing deals.
Klinger Volume Oscillator
The Klinger volume oscillator (KVO) is quite sensitive to short-term price fluctuations, but at the same time, it is quite good at reflecting long-term money flows in and out of the market. The oscillator is based on a price range that acts as a measure of market movement, as well as on volume, which represents the force behind the movement. KVO generates highly reliable signals in the direction of the current trend, but it is much less effective against the trend.
The strongest signal is the divergence between new peaks or troughs in the price, especially in overbought and oversold areas. During an uptrend, one should buy when the KVO falls unusually low (below zero) and then starts going up and crosses its trigger line. Conversely, one should sell when the reverse is true.
Awesome Oscillator by Bill Williams
The oscillator developed by Bill Williams works similarly to the universally known MACD except for one thing – it uses median values instead of closing prices. AO is displayed as a histogram that illustrates the difference between two moving averages with periods of 5 and 34. Green bars indicate a bullish trend, while red ones point to a bearish trend.
AO can generate several buy signals:
- Crossover – the histogram crosses above the zero line
- Saucer – the histogram is above the zero line, its color changes from red to green, and a trough (or saucer) is formed
- Twin Peaks – the second local minimum on the histogram is higher than the previous one, forming a line of resistance; the trough must remain above the zero line
In the reverse setups, sell signals are generated.
Detrended Price Oscillator
The detrended price oscillator (DPO) is an unusual indicator that eliminates price trends. According to its author, this allows traders to identify oversold and overbought areas more efficiently. The indicator analyzes short-term cycles, so its period value should not be set above 21.
The following setups should be considered a signal to buy:
- The oscillator crosses above the zero line (especially if the movement happens simultaneously with a price rise)
- The indicator enters an oversold area (there are no universal values for determining oversold and overbought conditions. To determine these values, it is recommended to find the median values of several recent minimums and maximums)
The DPO does a good job illustrating price movements, and it is a good tool to catch small corrections and retracements, but it is not recommended to build a trading strategy based on this indicator alone.
It’s worth pointing out that there are no perfect oscillators on the market. Thus, it is essential to double-check the veracity of their signals using other instruments, as well as to use stop-loss orders. This article is provided for informational purposes only and should be considered advice to buy or sell any asset.