Technical Analysis Tools and Indicators
Trend Analysis Through McCllelan Oscillator
McClellan Oscillator is basically the guage of the market breadth.
It is derived by calculating the following :
* Total number of advances (TA) minus Total number of Declines (TD)
* Then calculate the 19 day EMA and 39 day EMA of the TA minus TD
* McClellan Oscillator value is the value of 19 day EMA minus 38 day EMA.
Below is the McClellan Oscillator chart for S&P CNX Nifty Spot price calculated on closing basis & MCClellan Oscillator Plotted on it.
Same as RSI or Stochastics, Mcclellan Oscillator also oscillates above & below the Zero Line.
Unlike RSI, McClellan Oscillator is plotted at a levels of -70 to +70.
When the Oscillator reading reaches below the -70 mark the Index is considered to be Oversold & when it reaches above the +70 mark it is considered to be Overbought.
A buy trade when the oscillator moves above the -70 mark from below can be most of the time rewarding and a Sell trade when the oscillator moves below the +70 mark from above can be rewarding.
Same as RSI or CCI we can trade divergences between the Index price and the McClellan Oscillator.
In the above chart of Nifty Spot, The orange line on the Index price shows price making lower closes but
the orange line on the oscillator shows the oscillator making higher lows. We can initiate a buy trade with a stoploss just below the close price which would be highly rewarding. We can very well see that Nifty zoomed 450 points from the lows of the Positive divergence.
To conclude ; any indicator or tool if used wisely with patience will give you profit in trading but money management is the key to technical analysis. Trading requires immense patience and alertness as well.
If we are able to determine the flow & trend of the market then the market will always oblige us by profits.
Warren Buffet says : “You cannot produce a child in a month by making nine women pregnant at the same time” So let the market take its own time to do what you want it to do and just flow with it.
Those who go against the market have to in the end curse it by saying that you can never make money in the stock market.