OSC Oscillator

The OSC Oscillator is an analytical indicator derived from the moving average, which reflects the difference between the current price and the average price over some time.

1. Definition

The oscillator uses the concept of acceleration in the changes in stock prices. According to the law of supply and demand, the stock price increase is shrinking daily. The upward momentum slows down at this point, and the market data may reverse and vice versa when the price falls.

Therefore, the MTM indicates the market index trend, with what force and speed in which direction.

2. Formula

OSC = 100 * (Closing Price - Average of the Last N-day Closing Prices);

OSCEMA = Smoothed Moving Average of the Last M-day OSC;

3. How to apply

1) The market is upward when the 10-day OSC is above 100. It is easier for investors to profit by holding the stock long; when the OSC rises above 120, it is an overbought condition. Investors should sell and take a wait-and-see attitude.

2) When the 10-day OSC is below 100, the market trends downward. It is more advantageous for investors to wait and see or make margin trading for short; when the OSC falls below 80, it is an oversold condition. Investors should buy for long. 

3) According to the crossover, one of the moving average strategies, a buy or sell signal will be generated when the daily OSC crosses its 10-day moving average.

4) A divergence between the OSC and the stock index indicates an impending reversal. Investors should consider buying or selling at this time. If the market index is trending in line with the OSC, it means that the stock index is either going up or down. 

4. Features

1) The oscillator can be used to judge whether the stock market indicates an overbought or oversold condition.

2) The oscillator is a leading indicator, which can signal a price trend in advance but can not predict the magnitude of the trend.

3) Investors should use the oscillator to judge the overbought or oversold condition of the stock market and then decide when to buy or sell with the positive or negative value of the momentum indicator. The two methods can be used together to improve the mark-to-market method.