Predicting Price Movements with Spectro™ O
How to Use The Oscillator
The Spectro™ Oscillator gives you the brains of Spectro™ M at your control. There are five different types of processing and four pivotal levels you can mix and match with depending on your trading strategy.
With all the options available, this can get overwhelming fast, but the simplest way to use this indicator is to look for divergences. Just like with the RSI divergences, you are looking for when the oscillator (blue line) diverges from the price. In the USDJPY chart, you can see the oscillator keep making higher lows as the price goes down. This is a bullish divergence. Almost immediately afterwards you can see lower highs as the price goes up, which indicates a bearish divergence.
Another way to use the oscillator is to look for when it crosses the center line. When the oscillator moves from the bottom towards the top, it is a bullish trend. A bearish trend is when the oscillator goes from the top to the bottom. The crossing is highlighted in the following chart. Using both the divergence and crossing together creates stronger trades.
Sometimes you will see the oscillator over extend the oversold or overbought zones. These create more solid tops and bottoms.
Each processing uses different mathematical filters that directly change the behavior of the oscillator. The 5 different types of processing for Spectro O are Symmetric Weight, True Strength, Normalized, Pure, and Volume Based. Which one you use is largely personal preference depending on your particular trading strategy.
This option applies different weights to the data set. It gives more importance to recent data compared to old data. This is useful as history doesn’t always repeat itself.
True Strength is based on the True Strength Indicator. It is a momentum oscillator based on a double smoothing of price changes. By smoothing price changes, TSI captures the ebbs and flows of price action with a steadier line that filters out the noise. TSI is somewhat unique because it tracks the underlying price quite well. In other words, the oscillator can capture a sustained move in one direction or the other.
Normalizing the data set is useful to eliminate the effects of data that could be an anomaly. This is basically another method to help smooth out the oscillator.
As the name sounds, Pure isn’t smoothed out and is based on just the price, action, and data. This makes it more reactive/noisy than the other options. This can work great with a more aggressive approach.
An oscillator based on volume is less reactive, very safe, and conservative. Because it doesn’t shift so easily, it tends to be more smooth. It is useful for longer positions as changes are more meaningful. Since volume always changes before the price, it can be helpful to look for a divergence.
The four pivot systems give you different ways to interact with the oscillator. Give each one a try and see which one fits into your trading strategy.
The Murrey pivots are based on Murrey Math Lines. They are dynamically created and adapted to every new candle. They provide probable supports and resistances.
90% of the price action happens inside of the Bollinger Bands©, but using the concept of the standard deviation with the Fibonacci sequence we can have an indicator that is more involved to the current behavior. This is also a Dynamic Pivot, it adapts every new candle.
This offers a more static pivotal leveling compared to the other pivot levels, which are dynamic and follow the oscillator to some degree.
Pivot levels are dynamically created based on Fibonacci sequence.