Fitting oscillator parameters to stock personality

Why one setting will not fit two issues

Over one shared window, two issues can show different personalities. One may follow a steady trend. Another may make more cyclic, volatile swings. A single indicator setting is unlikely to fit both.

Issue personality here is a short-horizon mix of volatility path, cycle, trendiness, and accumulation or distribution. The working assumption is that this mix can persist briefly if it does not change abruptly. The lookback period is treated as a measurable trait of one issue rather than as a universal default.

What each oscillator measures

The relative strength index is a bounded comparison of up-period versus down-period movement over n observations. In the archive wording, it compares up days with down days over an n-period window. That n is the fitted lookback. Conventional reversal lines sit at 30 and 70. The relative strength index is described as a better match for issues that reverse abruptly after long intermediate advances or declines.

The stochastic oscillator is a bounded reading of where the latest close sits inside the high-low range of the last n periods. That n is again the fitted lookback. Conventional reversal lines sit at 20 and 80. The stochastic oscillator is described as a better match for cyclical issues with well-defined channels.

The Chaikin oscillator is a volume-flow oscillator formed as the gap between short and longer exponential averages of accumulation and distribution. In this workflow it is the difference between three-period and 10-period exponential averages of accumulation and distribution. The more distinctive parameter across stocks is the peak or trough trigger height rather than those averaging lengths.

Defaults, a search range, and one illustrated year

Commonly listed defaults in the illustrated set include a nine-period stochastic oscillator, a 14-period relative strength index, and a 1,000-level Chaikin oscillator.

The stochastic lookback search was specified as five through 25 periods in steps of four, giving the candidate set 5, 9, 13, 17, and 21.

In the illustrated one-year fit, the selected settings were a 17-period stochastic oscillator, a 20-period relative strength index, and a 1500-level Chaikin oscillator.

A peak-reversal trigger instead of a first cross

A peak-or-trough reversal is used instead of a simple level crossover because a crossover is treated as late. The peak-reversal trigger fires only after the oscillator has crossed a stated level and then turned, instead of on the first crossing of that level.

A long setup requires yesterday's oscillator below the buy trigger and a two-day average of the oscillator below the current oscillator value.

Agreement only after the settings are known

The proposed screen asks for oscillator turning-point signals, agreement with the measured trend, and preferably two or more of the customized oscillators confirming before an entry is considered.

Editorial note. In the TradersWeek reading, that confirmation step is meaningful only after lookback and trigger height have been measured on recent data for the issue at hand. Agreement is not a substitute for the fit.