CHAPTER 12
Oscillators: Trading Oscillators Systems

ANSWER 12.1 R US Daily MACD (12, 26, 9)

Red divergence lines show turns caught by MACD.
Turns denoted by blue arrows, as well as nondivergent comparisons shown in blue.
Three-bar plateau on the MACD circled.
No, the MACD does not generate OBOS signals.

No, each has a similar appearance.
The reason is that both are moving average oscillators; the only difference is that the MACD always uses exponential moving averages, with defaults of 12, 26, and 9, while a MAOsc is more generic and can use simple, exponential, or weighted moving averages and has no standard default.
Blue divergences are valid on the MAOsc.
Blue divergences are valid on the MACD.
The divergences were from the first to second and first to third peaks at area labeled 5.
The divergence the MAOsc missed altogether is labeled 6, as shown by the red arrow. The oscillator has a higher high, not a lower or equal high as required.
The MAOsc was “off tolerance” on two divergences, as shown in red, labeled 7. In both cases, momentum peaks took place three bars after the price peaks.
The purple divergence line labeled 8 shows an instance of bullish flat divergence on the MACD. This is where the momentum peaks are the same, in this example, same lows.

The Ultimate Oscillator used multiple periodicities, but only three. These are 7, 14, and 28.
Kase's indicators use a loop through a range of periodicities to optimize for periodicity.

Two overbought signals are denoted by red Ks. From the KCD one can identify an overbought signal by the magenta overbought lines, and the red dot showing a peak, coincident with a peak in price. An actual overbought signal triggers one bar after the peak, because a lower high is needed to actually identify that a peak has taken place.
A higher high in price is accompanied by a higher high, not lower high, in momentum.
The second low in momentum is six bars after the price low, so it's off tolerance.
Correct divergences are shown, drawn in red.

See black arrows as marked.
Each blue arrow, from left to right a bullish divergence then, a bearish divergence and a KCD peak (oversold signal), allowed for exits earlier and at better prices.
The two sets of red arrows, exit long and reenter long, represent divergences that caused whipsaw trades.
Both dotted line divergences made new lows without first hitting the top of the channel, so no exits were taken, and thus there's no difference.

There are three bearish and two bullish PeakOuts, marked by Ps above and below price swings. If the Kase PeakOscillator shows a gray bar, that equates to a valid peak. The blue line denotes oversold above the zero line and overbought below. If a peak line takes place above a positive PeakOut line, that's a valid overbought signal, and below a negative line, that's a valid oversold signal.
Three valid divergences are marked in green. The first, from the left, is bearish and the following two, bullish.
Two incorrect comparisons are shown by the dotted lines. It's incorrect to compare falling highs or rising lows.
Marked by black lines. The comparison is valid become one is comparing falling lows. The momentum indicator also falls, so that's why it's nondivergent.
The turn marked by the black nondivergent lines was missed because of that phenomenon.
Helpful PeakOuts and divergences marked in blue, as they preceded major turns.
Black arrows show points at which exiting would have been helpful, but reentries, albeit likely at better prices, would have followed.
The red arrow shows a point at which there was only a minor two-bar bounce. Note, however, that if dropping down to an short intraday chart, like a 15-minute, the signal still would have been helpful in that regard.

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