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Forecast Oscillator
Description
The Forecast Oscillator is an extension of the linear
regression based indicators made popular by Tushar Chande. The
Forecast Oscillator plots the percentage difference between the
forecast price (generated by an x-period linear regression line) and
the actual price. The oscillator is above zero when the forecast
price is greater than the actual price. Conversely, it's less than
zero if its below. In the rare case when the forecast price and the
actual price are the same, the oscillator would plot zero.
Interpretation
Actual prices that are persistently below the forecast price suggest
lower prices ahead. Likewise, actual prices that are persistently
above the forecast price suggest higher prices ahead. Short-term
traders should use shorter time periods and perhaps more relaxed
standards for the required length of time above or below the
forecast price. Long-term traders should use longer time periods and
perhaps stricter standards for the required length of time above or
below the forecast price.
Chande also suggests plotting a three-day moving average trigger
line of the Forecast Oscillator to generate early warnings of
changes in trend. When the oscillator crosses below the trigger
line, lower prices are suggested. When the oscillator crosses above
the trigger line, higher prices are suggested.
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