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Oscillators tend to be somewhat misunderstood in the trading industry, despite their close association with the all-important concept of momentum. At its most fundamental level, momentum is actually a means of assessing the relative levels of greed or fear in the market at a given point in time. Markets ebb and flow, surge and retreat—the speed of such movement is measured by oscillators.

An oscillator is typically created by detrending a moving average. The moving average can be simple or weighted.

One of the most complicated oscillators is the Commodity Channel Index (CCI).

It has so many unknown variables that it cannot be projected mathematically; However, it can be projected by iteration.

It is calculated as the mean deviation of today's price from a moving average of typical prices, where typical price can be the sum of the high plus the low divided by two; the sum of the high, the low, and the close divided by 3; or the sum of the high, the low, the close and the open divided by 4.

In some respects, it is similar to the Bollinger Bands. It is a measure of volatility, as are Bollinger Bands, but CCI is plotted as a variable parameter oscillator. It has no fixed boundaries. Theoretically, but not practically, CCI can have values all the way to infinity. In that way it is different from every other fixed parameter oscillator.

By comparison Bollinger bands are calculated as the standard deviation of today's closing price from a moving average of closing prices, and are plotted as a channel in the same pane as are prices. 

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Thursday, 13 June 2024

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.