McClellan Oscillator – Market Indicator
McClellan oscillator is another stock market indicator, which can be used in conjunction with other technical analysis tools for predicting market direction and overbought and oversold conditions. McClellan oscillator was developed by Marian McClellan and Sherman in 1969. This market indicator is most helpful for short-term traders, especially for figuring out correct market reversal points.
The actual formula of McClellan oscillator is quite complex, and takes consideration of EMA (Exponential Moving Average) of difference between daily advances and declines. The simplified formula is,
McClellan Oscillator = (19 day EMA of Advances-Declines) – (39 day EMA of Advances-Declines)
The oscillator values include both positive and negative integers. For NYSE the values above or around +100 indicate the market is overbought and selling pressure is increasing. The values below or around -100 indicate the market is oversold and a rally is around the corner. For NASDAQ the overbought and oversold values are +40 and -40 respectively. A trend reversal is confirmed when the oscillator crosses 0 after reaching +100 or -100 (NYSE).
The general idea behind McClellan oscillator is, a bull market weakens when the number of gaining stocks decreases and a bear market weakens when the number of losing stocks decreases. Over the years McClellan oscillator has remained a major trend indicator for swing traders and other short-term traders. It offers better results when combined with Arms index or similar indicators.
The actual formula of McClellan oscillator is quite complex, and takes consideration of EMA (Exponential Moving Average) of difference between daily advances and declines. The simplified formula is,
McClellan Oscillator = (19 day EMA of Advances-Declines) – (39 day EMA of Advances-Declines)
The oscillator values include both positive and negative integers. For NYSE the values above or around +100 indicate the market is overbought and selling pressure is increasing. The values below or around -100 indicate the market is oversold and a rally is around the corner. For NASDAQ the overbought and oversold values are +40 and -40 respectively. A trend reversal is confirmed when the oscillator crosses 0 after reaching +100 or -100 (NYSE).
The general idea behind McClellan oscillator is, a bull market weakens when the number of gaining stocks decreases and a bear market weakens when the number of losing stocks decreases. Over the years McClellan oscillator has remained a major trend indicator for swing traders and other short-term traders. It offers better results when combined with Arms index or similar indicators.
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posted by Daniel Pipitone at
3:00 AM
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