Beyond calculations on indicators, this latter can also
provide information by themselves, just as stock prices. Trends and
figures can thus be identified. Indicators can also bump under resistances or
land on supports. This aspect is also interesting as trend ruptures on
oscillators often precede that on stock prices. Within this framework, the
neutrality zone (corresponding to the middle of the boundaries for indicators
with boundaries) is especially overseen, as it often constitutes a major support
or resistance.
Moreover, it is possible to use filters. For example, it is
often wise to compare oscillators with their moving average on a certain number
of days to eliminate punctual and non-significant variations. It then becomes
possible to set up a systematic method, based on the fundamental principle of
indicators: not going against the trend. This rule consists in buying as
the oscillator breaks up the zero level, while it stands above its moving
average, and to sell as this level is crossed down, with the indicators turning
around and crossing down the zero level.
This set of counter-trend indicators is based on a simple
observation: when stock prices stand in a bullish trend, closes stand at higher
and higher levels from day to day while, when stock prices stand in a bearish
trend, closes stand at lower and lower levels. Combining both conclusions, it
becomes possible to forecast reversals as soon as new tops appear but with
closes on the downside.