The Price Oscillator uses two moving averages, one shorter-period and one longer-period, and then calculates the difference between the two moving averages. The Price Oscillator technical indicator can be used to determine overbought and oversold conditions as well as to confirm bullish or bearish price moves.
The moving averages lengths are defined by the user. In the chart below of the E-mini Russel 2000 futures contract, the 9-day and 18-day moving averages are used:
When the 9-day moving average crossed over the 18-day moving average, the Price Oscillator crossed over the zero line. When a short-term moving average crosses over a long-term moving average, a bullish crossover occurs. Usually bullish crossovers are considered to be a good time to buy.
Likewise, when the 9-day moving average crossed below the 18-day moving average, the Price Oscillator crossed below the zero line. When a short-term moving average crosses below a long-term moving average, a bearish crossover occurs. Usually bearish crossovers are considered to be a good time to sell.
The Price Oscillator makes it easy to see moving average crossovers. The Price Oscillator is also a means to detect overbought and oversold conditions; this is discussed on the next page.
