In this article, We learn about “McClellan Oscillator “.Let’s Go!
The McClellan Oscillator is a technical indicator used to determine the behavior of the entire market, rather than the behavior of individual assets.
The oscillator was developed by Sherman and Marian McClellan for use by the New York Stock Exchange (NYSE) and is currently inherited by their son Tom.
Essentially a look at the dynamics of the potential breadth of the market.
When is greater than zero , momentum is positive; when is below zero , momentum is negative.
It can also be used as an overbought/oversold indicator when it pushes above +100 or below -100 respectively.
When the general trend changes, indicators tend to go to extremes, resulting in a slow market response, indicating that the market tone has changed and the overall trend is more likely to change.
How the McClellan Oscillator Works
The McClellan Oscillator is calculated by first subtracting advancing assets from declining assets in the overall market to determine the market’s net advances and declines.
Power
This net market action uses two moving averages, one for a 39-day period and one for a 19-day period.
The difference between these two moving averages is formed by subtracting the 39-day average from the 19-day average, forming the McClellan Oscillator.
- When the McClellan Oscillator is positive, upswings dominate the market.
- When the oscillator is negative, the decline dominates.
Traders take this as a signal of overall momentum in the market.
Overbought/Oversold
Signals above 100 or -100 indicate that the market is overbought or oversold respectively.
- If the oscillator turns positive from -100 or below, a buy signal is generated.
- If the oscillator turns negative from 100 or above, a sell signal is generated.
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