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Figure 11.- This is a weekly chart of Soybean Oil. It shows what the weekly oscillator looks like, except that, if youre doing it by hand, you wont need to take the tinne to draw in all the vertical lines.

Here are some points to note: From a to b, the oscillator overall is running sideways, while prices are stilt fatting steeply, indicating why a weekly oscillator cannot be the oniy thing used to exit trades entered from a daity chart.

Note also that from a to b, there is extreme divergence. Prices are dropping sharply, but youd never know it from the oscillator, showing that divergence by an oscillator is not necessarily an omen of things to come.

From to d, there is stair-stepping and a flat oscillator. Notice the first flat week of the oscillator at e. I would not enter any trade while the oscillator is flat. The next week, the oscillator steps down a notch and then steps up, then down and then remains flat for two weeks, indicating that no entries are to be made. Clearly, Bean Oil is in an extended trading range and would be best traded using the envelope looking for the breakout from its trading range.

So what good is this oscillator? To best evaluate what good it is, it will take seeing it used in combination with the daily charts and the daily oscillator, which are described tn the next Part of the manual. For now, lets note a few more things about this oscillator.

Examining it more closely, please note that each individual segment represents one entire week consisting of five days. If the oscillator shows /, that means long positions only are taken, if the oscillator shows \, then short positions are taken, if the oscillator shows -, then no positions are entered. Every turn of the osciHator is signifigant.

Remember, this oscillator is used only to coordinate entry signals on the daily chart. Its only other purpose is to signal an alert to tighten up, should it go flat or change direction.

Notice that the oscillator is only relatively overbought or oversold, there is no absolute scale. Notice also that moves by price when the oscillator changes direction are more pronounced if the direction change starts from above or below the zero line.

That is all that needs to be said of this oscillator until we see it used in conjunction with the daily chart.

Ajsleat Trick

Now I want to show you a neat little trick that, when used, makes this oscillator very valuable. It requires some extra work, but it is well worth the effort.

I have pointed out that every single move of each one week segment of the oscillator is valid and worthy of note.

Most charting services and most computer software that Ive seen always show the weekly chart current as of the end of a week, usually Friday. But who says that a week must end every Friday? Must a weekly chart reflect only the latest five days of trading every Friday?

Of course not. A proper weekly chart should be one that is set up to reflect action thatjs pne magnitude greater than the daily chart. It should display its latest price bar to always reffect where prlcesare relative to the latest 5 days of trading. You are looking at just such a chart in Figure 11. Once a trading week is complete, the price bar is set just as it would be on any other weekly chart, at the end of the trading week. But during the trading week, the last price bar shown always reflects the latest 5 days of trading.

Consequently, during the course of the week that price bar might look like p, or or j-, or something in between, it changes every day to reflect the latest 5 days of trading. Why Is this Important?

When you have an oscillator that is so sensitive that it either leads or is coincident with prices, then each and every segment becomes important. I cant afford to wait until the end of the trading week to find out if the oscillator segment has changed direction. I need to know today. Since the oscillator is computed based upon the difference between two moving averages of closing prices, I need to know if todays price action has caused the oscillator to change direction.

Smoothed by 10

4.1 } Plot 4.0 } Points

I change

this last

price every day and recalculate jny plot point.

So, when I compute the weekly oscillator, 1 take the time and effort to make the latest segment reflect the last 5 days of trading. Heres how I do that: