The projection oscillator was developed by Dr. Mel Widner and is intended as a modification of the projection bands. The thing that makes the projection oscillator unique is that it measures the value of the current price to the lower and upper projection bands. Whereas other oscillators such as the stochastic oscillator only compare the current price to its minimum and maximum prices over a recent time period.
What are the Maximum and Minimum Values of the Projection Oscillator
The maximum value for the projection oscillator is 100. This means that the price is currently touching the upper band. If the indicator is at 50, it means the price is in the middle of the upper and lower projection bands. Lastly, a value of 0, means the price is testing the lower projection band.
How to Trade with the Projection Oscillator
Overbought/Oversold
The easiest method for trading the projection oscillator is to buy and sell a security when the projection oscillator reaches extreme levels. So, if the oscillator crosses below 30, a sell signal is generated. Conversely, a move above 70 will generate a buy signal. This method of trading the oscillator is the least reliable as it does not take into account the momentum of the stock or current market conditions.
Crossovers
When the projections oscillator crosses a trade trigger at a specific level, a buy or sell signal is triggered. An example of a buy condition would be when the price oscillator crosses the 5-day moving average below the 30 level. Placing a moving average overlay on the indicator is a common option for many trading applications.
Divergences
Lastly, one of the most common methods of trading many indicators is to look for divergences between price action and the direction of the indicator. So, if a trader sees the stock making a new high, while the projection oscillator is trending lower, a sell signal could be triggered.
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