The Ultimate Oscillator
by Larry Williams
There is nothing more intriguing to the beginning commodity or stock trader than the discovery of
oscillators. At first, oscillators appear to be the perfect trading tool because so often they give excellent
buy and sell signals. But, the more you use oscillators, the more you realize that oscillators give an equal
number of false signals.
Since the turn of the century, traders have tried to tame their oscillators in order to develop a new
approach that does not give false signals or false divergences yet provides an insight into the market that
no other tool can.
An oscillator actually measures the momentum of data, whether it is price, volume, or open interest. An
oscillator will help show the speed at which the information is changing. Thus, it can also define
over-bought or over-sold areas.
The pioneer in oscillator work was Owen Taylor who in the 1920's presented oscillator work based on
7-day data. Taylor looked at price today versus a 7-day moving average of price or a 7-day moving
average of advancing and declining stocks over the last seven days.
In the 1940's Woods and Vignolia started their interesting approach to the market measuring volume in
what is now known as On Balance Volume. These two gentlemen, based in San Francisco, started
running a cumulative positive-negative volume flow that was later popularized by Joe Granville. Woods
and Vignolia also did a tremendous amount of oscillator work using 20 to 40-day measurements of days
that had up volume versus days that had down volume.