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Chapter 12, Part VI. Detrended Oscillator and Momentum Indicator. Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 20, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Pipruit: But Commander, how we will use DOSC or Momentum, since they are not scaled? How we will estimate when the market is oversold or overbought?​
    Commander in Pips: This is an excellent question son. But answer is simple – we will use their historical extreme values:

    1. We have to estimate the extreme high (or average of 2-3 highest highs) and the extreme low (or average of 2-3 lowest lows);

    2. When DOSC or Momentum will reach an extreme high – then the market is overbought. When it will reach an extreme low – then the market is oversold;

    3. You may not use 100% of these extreme high or low of DOSC. You may apply, for instance 80-90% of these levels to make a conclusion that market is overbought or oversold. For instance, if historical DOSC extreme high is 850 points – you may use 90%*850 = 765 points level as overbought. The same is for oversold – if extreme low is, say, “-650” – you may use 90%*(-650) ~ -585 points as oversold;

    4. These critical DOSC levels have a tendency to change when market renews DOSC high or low. So when it will happen – you will have to recalculate your extreme levels. This is another great advantage of non-scaled indicators – they are always tracking current market volatility and allow you assess it more clearly.

    5. These levels will be different for different time frames and pairs. So, the weekly period has its own oversold/overbought in difference to monthly and daily time frames. You have to calculate them for each time frame that you trade at.
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