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Range Oscillator
Range Oscillator is a centered oscillator that can be classified as both trend and momentum indicator and also as either bound limited or non-limited one.
The main part is a measure of difference between specified source (Price, if source is set to close) and average of highest and lowest price in a given period(Range), plotted as histogrsam.
Thus when level of price is above this average, oscillator shows bullish trend and if the price trades below it, oscillator will show bearish trend.
Height of histogram shows momentum, as price diverges from base bars of histogram will grow longer and this also indicates a rising momentum. And a narrowing histogram shows that trend and momentum are fading.
Indicator can be modified in various ways as there are plenty of options available...
The first option you will see is the mode option. Oscillator can be set to basic, percent and index modes.
Basic mode is simply the distance of source from base. Percent mode calculates the percent of this distance. And Index mode limits the oscillator to percent of range, where 50 is the center.
Look-back period is the number of bars that will be checked to canculate range. (20-60 is suggested)
Then there is smoothing option which is enabled as default and you have 4 types of moving averages (SMA, EMA, WMA, RMA) to choose as smoothing method of signal or turn it off.
Another double moving average is provided if you would like to add more filtering layers to signals. Histogram will be changing colors based on moving average crosses if they are enabled. Second MA can be used as source of first MA to simulate K and D.
Next option is to whether have wicks included in range calculation or not.
And levels and source can be modified at the end.
Overbought/Oversold...
Oversold and overbought levels can be seen in all modes. In non-index modes the levels are not fixed, but canculated in percent and plotted around center level dynamically.
Remeber that these areas are not there to signal reversal but trend strength.
Default threshold is set to 70 for overbought and 30 for oversold, and can be changed according to security or self preferences.
Readings above overbought level would indicate that the underlying security was trading near the top of high-low range for the specified period of bars back. Readings below oversold occur when a security is trading at the low end of its high-low range.
Signals...
Center Cross
As explained, Center Cross (The most basid signal generated by indicator) could be a result of possible change in trend.
Bull/Bear Divergences
Divergences form when a new high or low in price is not confirmed by the oscillator. A bullish divergence forms when price records a lower low, but the Range Oscillator forms a higher low. This shows less downside momentum that could forecast a bullish reversal. A bearish divergence forms when price records a higher high, but the Range Oscillator forms a lower high. This shows less upside momentum, and indicates a possible bearish reversal. Once a divergence happens, other confirmation such as Center Line cross or a trend break-out on the chart, should be considered to signal an actual reversal.
Twin Peaks
Since the similarity of Range Oscillator and Awsome Oscillator, Twin Peaks can also be considered as signals in non-Index modes.
Twin Peaks is a method which considers the differences between two peaks on the same side of the Center Line.
A Bullish Twin Peaks setup occurs when there are two peaks below the Center Line. The second peak is higher than the first peak and followed by a light bar. The trough between the two peaks, is recommended to remain below the Center Line the entire time.
A Bearish Twin Peaks setup occurs when there are two peaks above the Center Line. The second peak is lower than the first peak and followed by a dark bar.
Momentum Failure
The situation happens when signal bars can't cross into overbought/oversold areas, which can lead to a strong trend reversal.
Saucer
A Saucer Setup looks for fast momentum changes in three consecutive bars on non-Index modes specially. Bars must be on the same side of the Center Line.
A Bullish Saucer setup occurs when the Oscillator is above the Center Line. It entails two consecutive dark bars (with the second bar being lower than the first bar) being followed by a light Bar.
A Bearish Saucer setup occurs when the Oscillator is below the Center Line. It entails two consecutive light bars (with the second bar being higher than the first bar) being followed by a dark bar.
Break-outs
Break-outs of lines generated from connecting peaks on non-Index modes can be considered as signal. Break-outs often provide faster signals that Center Line cross.
Example chart with Basic mode:
GBPUSD, 1D
Attention: Like most of other indicators, the point that it is based on historical data of price will often result in false signals.
It is very important to use the Range Oscillator with causion, And in conjunction with other technical analysis.
The main part is a measure of difference between specified source (Price, if source is set to close) and average of highest and lowest price in a given period(Range), plotted as histogrsam.
Thus when level of price is above this average, oscillator shows bullish trend and if the price trades below it, oscillator will show bearish trend.
Height of histogram shows momentum, as price diverges from base bars of histogram will grow longer and this also indicates a rising momentum. And a narrowing histogram shows that trend and momentum are fading.
Indicator can be modified in various ways as there are plenty of options available...
The first option you will see is the mode option. Oscillator can be set to basic, percent and index modes.
Basic mode is simply the distance of source from base. Percent mode calculates the percent of this distance. And Index mode limits the oscillator to percent of range, where 50 is the center.
Look-back period is the number of bars that will be checked to canculate range. (20-60 is suggested)
Then there is smoothing option which is enabled as default and you have 4 types of moving averages (SMA, EMA, WMA, RMA) to choose as smoothing method of signal or turn it off.
Another double moving average is provided if you would like to add more filtering layers to signals. Histogram will be changing colors based on moving average crosses if they are enabled. Second MA can be used as source of first MA to simulate K and D.
Next option is to whether have wicks included in range calculation or not.
And levels and source can be modified at the end.
Overbought/Oversold...
Oversold and overbought levels can be seen in all modes. In non-index modes the levels are not fixed, but canculated in percent and plotted around center level dynamically.
Remeber that these areas are not there to signal reversal but trend strength.
Default threshold is set to 70 for overbought and 30 for oversold, and can be changed according to security or self preferences.
Readings above overbought level would indicate that the underlying security was trading near the top of high-low range for the specified period of bars back. Readings below oversold occur when a security is trading at the low end of its high-low range.
Signals...
Center Cross
As explained, Center Cross (The most basid signal generated by indicator) could be a result of possible change in trend.
Bull/Bear Divergences
Divergences form when a new high or low in price is not confirmed by the oscillator. A bullish divergence forms when price records a lower low, but the Range Oscillator forms a higher low. This shows less downside momentum that could forecast a bullish reversal. A bearish divergence forms when price records a higher high, but the Range Oscillator forms a lower high. This shows less upside momentum, and indicates a possible bearish reversal. Once a divergence happens, other confirmation such as Center Line cross or a trend break-out on the chart, should be considered to signal an actual reversal.
Twin Peaks
Since the similarity of Range Oscillator and Awsome Oscillator, Twin Peaks can also be considered as signals in non-Index modes.
Twin Peaks is a method which considers the differences between two peaks on the same side of the Center Line.
A Bullish Twin Peaks setup occurs when there are two peaks below the Center Line. The second peak is higher than the first peak and followed by a light bar. The trough between the two peaks, is recommended to remain below the Center Line the entire time.
A Bearish Twin Peaks setup occurs when there are two peaks above the Center Line. The second peak is lower than the first peak and followed by a dark bar.
Momentum Failure
The situation happens when signal bars can't cross into overbought/oversold areas, which can lead to a strong trend reversal.
Saucer
A Saucer Setup looks for fast momentum changes in three consecutive bars on non-Index modes specially. Bars must be on the same side of the Center Line.
A Bullish Saucer setup occurs when the Oscillator is above the Center Line. It entails two consecutive dark bars (with the second bar being lower than the first bar) being followed by a light Bar.
A Bearish Saucer setup occurs when the Oscillator is below the Center Line. It entails two consecutive light bars (with the second bar being higher than the first bar) being followed by a dark bar.
Break-outs
Break-outs of lines generated from connecting peaks on non-Index modes can be considered as signal. Break-outs often provide faster signals that Center Line cross.
Example chart with Basic mode:
GBPUSD, 1D
Attention: Like most of other indicators, the point that it is based on historical data of price will often result in false signals.
It is very important to use the Range Oscillator with causion, And in conjunction with other technical analysis.
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