Any oscillator will show you the pricechart in a kind of distorted way. If you just once switch to a Line on close chart and compare what you see with your Oscillator of choice (CCI, STO, RSI to name the most common) you will notice the similarities. Any oscillator is a derivative of price, it is based on pricedata, so that behaviour is to be expected. Price itself is the most important information you have in trading. The oscillator is secondary, the oscillator is giving you the Go ahead, the green light, when price has already told you, that something is about to happen.
Yesterday 1280 was major resistance in the ES. Price going up to 1279.0 1279.25 .. 1280.50 1281.00 .. 1280.50 1279.75 and suddenly you see a signal forming in your oscillator of choice and you take the Short. Why? Because price tells you, hey I'm at major resistance maybe it's a good idea to go short somewhere here. But you wait, as 1280 was broken to the upside and then the oscillator tells you, hey dude, now is the time to short.
Do you need the oscillator to tell you that there was resistance in the ES. Sure not. It was selfevident. Do you need the oscillator to short the rebreak of 1280? No. But it helps to see the signal in the oscillator, to get a clear go ahead.
Problems start, if you look first at the oscillator and see price as secondary information. You get a green light on the oscillator and you look at price and say, hey yes, that looks good, let's take it, but it fails. Now you blame the oscillator for giving wrong signals and you start finetuning. And you have success with eliminating bad signals the oscillator gives you. Unfortunatly that finetuning also eliminates good signals. Everyone trading for some time has been down that road and knows what I'm talking about. Finetuning isn't the solution. Changing perspective is!
Price comes first, then comes the oscillator. If you know how far an average trendmove goes in the ES, in the YM, in the Russel, in the contract you trade, then we can start talking business. Take the ER2. A trendmove usually goes for 10 to 12 full points. (see the second chart example from yesterday) Sometimes it stops at 8 sometimes it goes 14 but that's really extended and only to be expected with very bleak news. So Russel is down 6 points and you think, that might be a bottom, let's try a long, and you'r not the only one thinking that way, so your oscillator will take notice of the prices stalling and give you a long signal. But Russel goes 1 or 1.5 points stalls again and the downtrend resumes. We all know that. The long signal failed and it's one of these signals we try to eliminate from our tradesetups.
But if the Russel is down 12 and your countertrend long signal forms then it might be worth taking, maybe you wait for confirmation of a double bottom, maybe you see we already did 3 legs down and somewhere we remember there are usually 3 thrusts to a top or bottom.
And you can as well anticipate the signal forming on the oscillator! Why? Because you know the contract you trade, you know it's behaviour and you know, it's a better than 85% chance that a countertrend signal will work, if you see price up or down at least the average trend move range.