To further your analytical tools specifically for #cryptocurrency trading, it's time to consider oscillators! Used extensively in assessing traditional equity markets, oscillators largely measure momentum, indicating when a market has entered overbought or oversold territory.
This is particularly useful for #crypto trading, which as you know can fluctuate wildly from one extreme to another!
I will teach you step-by-step how to build your own oscillator in Microsoft Excel, which is incredibly easy to do. But before we get into the nuts and bolts, let's establish the foundation.
Momentum Defined
John J. Murphy is often considered the godfather of technical analysis. Have you ever visited Stockcharts.com? That's John J. Murphy! If you've heard anything about the technical approach, it probably came from his groundbreaking book, Technical Analysis of the Financial Markets.
I will borrow Murphy's definition of momentum, in which he write:
The concept of momentum is the most basic application of oscillator analysis. Momentum measures the velocity of price changes as opposed to the actual price levels themselves. Market momentum is measured by continually taking price differences for a fixed time interval. To construct a 10 day momentum line, simply subtract the closing price 10 days ago from the last closing price. This positive or negative value is then plotted around a zero line. The formula for momentum is:
M = V - Vx, where V is the latest closing price and Vx is the closing price x days ago.
This is remarkably easy to duplicate in Excel. Assume cell B2 has the data for V, and cell B11 has the data for Vx. In an empty cell, you would simply type the following:
- =(B2-B11)
BOOM! There's your momentum formula. From here, you would simply "scroll down" the formula to get further momentum data, which you will apply for your broader oscillator data. I will expound upon this lesson in further posts (and to be frank and completely, utterly transparent, since this post will probably make 90 cents, I want to ensure that I'm getting at least enough money to buy a few tacos for the lengthy time investment I put into these lessons!)
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