I found a post on stockpickr that explained it pretty well:
It seems he has mentioned it a number of times since there is another post about it The Tech Farm. Here they show how you can do a similar comparison using the Relative Strength Index (RSI). The Bollinger Bands represnt a similar indicator based on a 20-day simple moving average.The S&P Short Range Oscillator is a market measure which takes a number of related variables of trading data into account, tracks development according to several moving averages, and results in an average numeric value which may be either positive or negative. Historically, the expression of this result has been viewed as symbolic of the condition of the market.
An Oscillator value of 50% is considered “par.” When the Oscillator reaches a value of “+4%” (meaning 4% above par, or 54%), the market is technically said to be in an "overbought” position. Markets in this standing may be considered as being poised for a downward correction.
By contrast, Oscillator values falling to levels below 50% may be indicative ofa trend in the opposite direction. An Oscillator value reaching “-4%”(meaning 4% below par, or 46%) is a technical indication of an “oversold”market, which may set the stage for a rally.
It should also be noted that extreme oversold or overbought market positions(Oscillator values reaching -8% or +8%, respectively) can often signify impending significant market advances or declines.
From what I can see RSI and BBands are similar but the BBands are definatlly easier for me to read since they have a upper and lower band arpund the security set by the standard deviation.
Testing this indicator on Yahoo I noticed a link to John Bollinger's site with a great description from the creator himself. It's amzing how much you learn by writing stuff down.
Enjoy,
Freeon
No comments:
Post a Comment