this is my little invention….it tends to track closely to Stochastics
at the standard 14 setting, but offers a few advantages over
The EMA 8 line is a moving average on the
StockRSI-14. StochRSI-14 moves very quickly between 0 and 100. Most of
the time, StochRSI is either at zero or 100, but spends little time
in-between. It is a stochastics measure of the RSI, and thus it’s an
oscillator measuring another oscillator.
As such, the idea
behind StochRSI is to spot the next potential pressure, either up or
down as early as possible. When StochRSI is at 0, the likelihood is
greater that the next short term move will be higher….and if at 100,
the next likely short term move is down. StochRSI is at 100 after buying
pressure drives prices higher…and at 0 when selling pressure drives
price down. Once the pressure has been released, the StochRSI is there
to tell us that.
What the EMA8 line does is offer some
in-between views between 0 and 100…and often, the StochRSI will rest
for a few days at 0 or 100…the EMA8 line attempts to capture that
resting period and time the next move in RSI-14 more precisely.
EMA 5 line is not measuring StochRSI, but rather, it’s measuring RSI-2,
a very fast moving oscillator. RSI-2 is designed to show very short
term peaks and valleys….the EMA 5 is an attempt to capture the period
between the peaks and valleys of RSI-2….again, its a smoothing
mechanism that attempts to make it easier to see beyond the volatility
of the moment.
Typically, the EMA5 line moves a bit faster than
the EMA8 line…the EMA5 line is like the “fast line” of the graph…it
shows when a turn is about to begin, thus allowing the trader the
earliest possible moment to get in on the trade…the turn in the EMA 8
line is a confirmation line most of the time…once the EMA8 line turns,
that confirms the move in the EMA 5 line. Without the confirmation in
the EMA8, then the EMA 5 move may be only a head-fake.
like about this oscillator compared to simple Stochastics or RSI-14 is
that it seems to spot moves up or down sooner than the more conventional
oscillators do….and with more precision.
Go to our Trader’s Forum (at TalkingStocks.AceStockTrader.com) and click on some of my charts (under the AceStockPlayer name). At the top of many of my charts is the Fast RSI graph. You should be able to compare my comments here with the graph at the top of many of my charts.