The PeakOscillator plot is a momentum indicator designed to measure the strength of a market trend. It is used similarly to traditional oscillators, but it is derived from a mathematically sound, statistical evaluation of trend, which analyzes over 50 different trend lengths, rather than just two as the traditional oscillator does. It automatically adapts for cycle length and volatility changes.
The PeakOscillator is “universal” in that it scales to volatility, and can be compared over differing commodities and time frames.
Other features of the PeakOscillator are the PeakOut and PeakMin lines.
The PeakOut line is the maximum of 2 standard deviations of the local PeakOscillator reading, and the 90th percentile of momentum, historically. The PeakMin is the minimum of the two.
Interpretation:
The PeakOscillator is used two ways:
•Divergence: The PeakOscillator may be used to generate traditional divergence signals. The difference between it and traditional divergence indicators lies in its accuracy.
•PeakOut: The second use is to look for a PeakOut. A PeakOut occurs when the histogram breaks beyond the PeakOut line and then pulls back. A PeakOut through the maximum line will be displayed magenta.
A PeakOut, which only extends through the PeakMin line is called a local PeakOut, and is less significant than a normal PeakOut signal. These local PeakOuts are to be relied upon more heavily during sideways or corrective markets.
PeakOuts may be based on either the maximum line or the minimum line. Maximum PeakOuts, however, are rarer and thus more significant than minimum PeakOuts. The magnitude of the price move may be greater following the maximum PeakOut, but the likelihood of the break in trend is essentially the same. Thus, our research indicates that we should react equally to a PeakOut in a trendy market and a PeakMin in a choppy or corrective market.
For further information, see Danger Signals in Trading Guidelines.
Peak Oscillator Parameters
•Display
•Range: Starting and ending points for the calculation window.
•F: Number of standard deviations over the average PeakOscillator value at which the local PeakOut line is set.