Many oscillators are well known to diverge from price. For example, it is often seen that when a market makes a lower low, the applied stochastic , RSI , and CCI oscillators can make a higher low at that time. These divergences often signal end-of-trend conditions. But a problem with these oscillators is that sometimes no divergences appear in price when a new trend starts. If you wait for a divergence to occur, you may be out of luck.
You can say that the Surge Oscillator is a divergence oscillator on steroids. Divergences appear when the other oscillators do not show them. The reason for this is because it is based on the 2nd derivative of price. To explain this further, with the Surge you are not only comparing higher price highs in an uptrend with lower swing values on the Surge, which I call a "front divergence", but you are also looking at higher price lows in an uptrend with lower swing lows on the Surge, which I call a "back divergence".
To help clear this up, let's go over this step by step. First the back divergence, because it appears first in real time. On the left side of the chart, as the oscillator swings to 5, it matches a market "low" at 1. As it swings to 6 it matches another market low at 2. So what we are seeing are higher lows in price. But we are also seeing lower lows on the oscillator. Even though the trend is not yet complete, the back divergence appears between price and the Surge. The back divergence is an indication of an impending end-of-trend condition. You can see this same pattern appearing on the right side of the chart, but this time it appears in a down market. Please look at points 5, 6 and 1, 2.
The front divergence which comes after the back divergence is shown by looking at oscillator swing from 7 to 8. It matches the price from 3 to 4. As the price goes higher, you can see the oscillator showing lower highs (and vice versa on the downtrend). The end of trend condition is when the back divergence first appears, and then a front divergence appears.
This oscillator works very well in high volume and two-sided markets. Lower volume markets are often plagued by manipulation, and so sometimes the Surge sends false signals. Furthermore in long trending markets that are being pumped or dumped, the oscillator may give premature signals along the way. Even though, there are trading strategies you can use with the Surge to profit in those conditions.
Next we will talk in more detail about the signal variations that the Surge produces.
You can say that the Surge Oscillator is a divergence oscillator on steroids. Divergences appear when the other oscillators do not show them. The reason for this is because it is based on the 2nd derivative of price. To explain this further, with the Surge you are not only comparing higher price highs in an uptrend with lower swing values on the Surge, which I call a "front divergence", but you are also looking at higher price lows in an uptrend with lower swing lows on the Surge, which I call a "back divergence".
To help clear this up, let's go over this step by step. First the back divergence, because it appears first in real time. On the left side of the chart, as the oscillator swings to 5, it matches a market "low" at 1. As it swings to 6 it matches another market low at 2. So what we are seeing are higher lows in price. But we are also seeing lower lows on the oscillator. Even though the trend is not yet complete, the back divergence appears between price and the Surge. The back divergence is an indication of an impending end-of-trend condition. You can see this same pattern appearing on the right side of the chart, but this time it appears in a down market. Please look at points 5, 6 and 1, 2.
The front divergence which comes after the back divergence is shown by looking at oscillator swing from 7 to 8. It matches the price from 3 to 4. As the price goes higher, you can see the oscillator showing lower highs (and vice versa on the downtrend). The end of trend condition is when the back divergence first appears, and then a front divergence appears.
This oscillator works very well in high volume and two-sided markets. Lower volume markets are often plagued by manipulation, and so sometimes the Surge sends false signals. Furthermore in long trending markets that are being pumped or dumped, the oscillator may give premature signals along the way. Even though, there are trading strategies you can use with the Surge to profit in those conditions.
Next we will talk in more detail about the signal variations that the Surge produces.
