V.12:12 (521-524): The Price Oscillator by Bruce R. Faber

V.12:12 (521-524): The Price Oscillator by Bruce R. Faber
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The Price Oscillator by Bruce R. Faber

What is this indicator and how can it be used? For neophytes to learn and seasoned traders who want to refresh their memories, check this out.

The price oscillator. Don't let the fancy name throw you. Simply, this tool is the difference between two moving averages. The price oscillator can be constructed using either points difference or percentage difference. You can use either simple or exponential moving averages. By plotting the graph of the difference, you are observing the moving average with the longer duration as a straight line. The movement of the short moving average in relation to the longer moving average is then plotted above or below the straight line. Plotted as a separate indicator, it becomes much easier to see. The distance above or below the line, the crossing points and the information that can be provided by either chart are exactly the same.

The basic use of the price oscillator is a buy signal that is generated when the shorter moving average crosses from below to above the zero line (which is the longer moving average). When it crosses through the zero line from top to bottom, it is time to sell. The actual crossing points of the two averages are fairly easy to see on any chart that generates moving averages, but with the use of the price oscillator, diverging or converging trends between the averages become clearly and immediately obvious. Most software programs include this indicator.

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