To identify the buy-sell trend, Price Zone Oscillator and Volume Zone Oscillator play significant roles. In order to get confirmation on a trend, it is advisable to use this oscillator with trend direction indicators. This particular technical oscillator works best to provide the buy-sell signal. Today we will cover a basic concept of the Oscillator.
Price Zone Oscillator
As I have mentioned, by using this particular technical indicator traders may forecast the upcoming trend. It works as a measurement tool to indicate whether or not the most recent closing price is below or above the previous closing price. In between two exponential moving average (EMAs), the indicator is calculated as a percentage ratio. It provides not only the trend signal but also helps to identify the overbought and oversold situation. Besides this, PZO highlights the potential reversal opportunities.
Price Zone Oscillator Calculation
There is a simple calculation process of the indicator. The method is described below:
Price Zone Oscillator = 100 x (CP/ TC)
Here CP indicates the closing price of the X-period EMA (Exponential Moving Average) of the current price.
TC refers the total closing of the X-period EMA
Here, the highest possible value stands at 100 while the lowest value is -100 but still traders have to watch key levels in between the range. In general, value above 40 is considered overbought and value below -40 is considered oversold.
The reason behind using 14-day EMA is to smooth out the PZO rather than simply using raw closing prices. The indicator carries a positive value when the current period’s closing price is higher than the previous closing price. Apart from this, it carries a negative value.
Features of Price Zone Oscillator
I have jotted down some of the main points of the oscillator, these are listed below:
- A rising security price and a falling PZO indicates a potential bearish reversal signal.
- A falling security price and a rising PZO represents a potential bullish reversal signal.
- It is advisable to use the PZO in conjunction with other technical indicators or charts.
A download link for the AmiBroker formula is given below, from there you can freely download the Price Zone Oscillator AFL.
Indrajit is a professional blogger and trading system developer. Amibroker expert, WordPress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.