Detrending Oscillators-

Stocks do not move in straight lines. They wiggle, they do sawtooth patterns, and they whipsaw all within trends that can be defined by trendlines and moving averages. Price action can be smoothed with the trendlines and moving averages. Another approach to removing confusion out of the volatility and price swings is detrending oscillators. The purpose of these oscillators is determine whether stocks are overbought and vulnerable to the downside or oversold and susceptible to upside surprise moves. While stocks can stay overbought and oversold for long periods, these techniques establish buy and sell signals once certain criteria are met.

These oscillators consist of Stochastics, Moving Average Convergence Divergence (MACD), Wilder RSI, and Momentum. They are based on a simple concept that a ball thrown in the air eventually loses upward momentum and reaches its zenith and then falls.

There are two broad types of markets- trending and trading. In a long trending market which has the steep ascent we have had in the 90's, detrending oscillators would have given you many sell signals. However, these signals, in many cases, were given off just as minor pullbacks and retracements were finished. In other words, the experience was the oscillators were too slow and would have punished your results, by getting you out and in at precisely the wrong times.

These oscillators require computers with the algorithms to compute the necessary signals. However, you can look at a stock's or index's price versus its major moving averages and what has happened historically when the charts go that relatively low or high. This may be more accurate and easy than the ominously named detrending oscillators.  Stocks generally regress to the mean (trendline of moving average) and so risk and the degree of overbought or oversold can be visually "eyeballed" with moving averages.

Trading Channels and Bollinger Bands- This is another attempt to determine if a trending stock is ahead of itself. Trending stocks and markets move in sawtooth patterns, either up, down, or sideways. A Trading Channel is drawn by making a line represented by the higher highs and a line representing the higher lows. Generally is the stock has tested this channel on numerous occasions, it will bounce off the channel and go down or up within that channel. If it breaches the channel to upside, it can mean an acclerated rise or steeper ascent and further, can mean that the top of the breached channel is actually support.

Bollinger Bands represent two standard deviations from a given moving average, say the 50 day moving average, and will generally define the trading bands for trending markets. Stocks tend to bounce off the bands and trade up to or down the moving average.