True Range Oscillation

Our True Range Oscillator was inspired by the work of Jack Schwager, author of the best selling Market Wizards. True range is also used in DMI and William's AD calculations, among others. It is defined as the true high - the true low, where the true high is the maximum of today's high and the previous close and the true low is the minimum of today's low and the previous day's close.

This oscillator plots the volatility ratio (VR) and was designed to facillitate trading the "Wide-ranging Day System" as described by Jack Schwager in his groundbreaking work, Schwager on Futures. In Schwager's words "The high volatility inherent in wide-ranging days gives these days special significance. Typically, the market will tend to extend in the direction of the initial price move beyond the boundaries of the wide-ranging day."1

The VR is defined as today's true range divided by the true range of the past 10 periods. A wide ranging day is defined as a day when the VR exceeds 2. Wide ranging days signal an impending change in trend. Note that this occurs rarely. In our our selected chart of GLD we find a wide ranging day at the beginning of powerful up move and another at the end of that move.

Chart showing True Range Oscillator by Trendsetter Software

 

2014 Trendsetter Software

1 Jack Schwager Schwager on Futures: Technical Analysis (p. 632) 1996