V.14:4 (152-156): Timing Stock Buys with an Oscillator by Richard Goedde

Timing Stock Buys With An Oscillator by Richard Goedde

Use this oscillator to calculate buy points for a stock in an upward trend.

Oscillators are most useful when prices fluctuate up and down within a horizontal or flat channel (two parallel lines that contain prices). When the channel is sloping upward as recommended for successful investing, it is more difficult to determine the point at which %R gives a valid buy signal. In investment analysis, an oscillator is a mathematical tool used to identify turning points in prices and is useful in timing the purchase and sale of a security. Here's how to use a specific oscillator, Williams' percentage range (%R), to time the purchase of stocks that are trending upward. What is not covered here is using %R to time the sale of stocks because oscillators frequently give false sell signals in upward trending markets. Here, then, is the logic of %R and how its use can result in bigger gains and smaller losses over time, how %R can be calculated by computer spreadsheet if technical analysis software is not available, and finally, a formula that calculates an appropriate buy point using %R.

Two points should be emphasized. First of all, oscillators may be used in conjunction with any method an investor uses to select a particular stock to purchase. The purpose of the oscillator is to better time the purchase after the company has been selected. Second, although future price patterns may not repeat the past, stock prices tend to fluctuate within a range. An oscillator is useful in maximizing gains and minimizing losses regardless of the future direction of prices.