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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. |
