Hello friends. We know that one of the methods we need to understand price movements in financial markets is technical analysis. Based on our technical analysis knowledge, we can determine when to enter and exit trades in the market. There are many different tools used in technical analysis. One of these tools is technical indicators. One of the biggest advantages of technical indicators is that they do not act emotionally and are entirely mathematical. Today, we will talk about one of these technical indicators, the Projection Oscillator.
What is the Projection Oscillator?
The Projection Oscillator (PO) is a technical indicator or
analytical tool used in trading financial markets. This oscillator helps us
make more correct decisions by tracking the price movement of an asset and
predicting future price changes. It is particularly useful for identifying
market momentum and overbought or oversold conditions. The Projection
Oscillator is a composite indicator consisting of a series of mathematical
methods and indicators used to analyze price movements. The PO has a value
ranging from 0 to 100. A reading of 50 signifies that the price is right in the
middle of the two lines and is of critical importance. In some versions of the Projection
Oscillator, there is no 50 line, but we can add it ourselves.
Projection Oscillator Best Setting
There is no single Projection Oscillator best setting that works for all markets or traders. The most common parameter to adjust is the Lookback Period (n), typically defaulted to 14. To find the Projection Oscillator best setting, traders must conduct rigorous backtesting on the specific asset and timeframe they plan to trade. What works well on a daily stock chart may fail on a 5-minute Forex chart.
Shorter settings (e.g., 7 or 10 periods) make the Projection Oscillator more sensitive, generating signals faster. This is suitable for aggressive day trading but results in increased market noise and more false signals.
Longer settings (e.g., 20 or 30 periods) smooth out the Projection Oscillator's line. These settings reduce false signals and are better for identifying major trend reversals, but they introduce significant lag, causing slower entries and exits.
Ultimately, the most profitable Projection Oscillator best setting is the one that minimizes whipsaws while accurately capturing the major turning points for the specific trading system being used.
Trading with the Projection Oscillator
This indicator is used to determine the price momentum and overbought or oversold conditions of an asset. It can be considered one of the less preferred technical indicators when trading in the financial markets. It typically produces values within a range of 0 to 100. Levels of 80 and above represent overbought conditions, while levels of 20 and below represent oversold conditions. When the Projection Oscillator (PO) falls below 20 and then rises, it can be a buy signal, and when it rises above 80 and then falls, it can be a sell signal. However, the most commonly used method is to enter a Buy order when the PO crosses the 50 level from below to above and enter a Sell order when it crosses from above to below. For example, take a look at the New Zealand Dollar/Japanese Yen chart below:
 |
| PO trading in the NZD/JPY chart |
In addition, when the PO (Pink line) crosses above the
signal line (Blue line), a buy signal is generated. When the PO (Pink line)
crosses below the signal line (Blue line), a sell signal is generated. See the
example on the Singapore Dollar/Swiss Franc chart below:
 |
| Trading with PO in the SGD/CHF |
Keep in mind that the Projection Oscillator is just one technical analysis indicator. Technical analysis indicators cannot be used to predict future price changes with absolute certainty. The Projection Oscillator can also produce false signals. When using any technical indicator, it's important to consider market conditions and other factors.