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Mikula Forecasting
Company: Strategy #19:
Breakout Oscillator
====================
MarketWarrior 3.2
Written by: Patrick Mikula CTA
Copyright (c)2003-06 by Patrick Mikula All Rights Reserved.
(Please to not copy or foreword this article).
Mikula Forecasting Company
P.O. Box 152672
Austin, TX 78715-2672
USA
www.MikulaForecasting.com
support@MikulaForecasting.com
====================
This article will discuss the Breakout Oscillator.
There is a traditional set of rules for using this indicator
that will be discussed later in this article but first I
want to discuss a setup that occurs much more frequently
than the traditional set of rules. Most markets will spend a
significant amount of time moving sideways. When a market is
moving sideways the Breakout Oscillator can be used to
locate the cycle tops and bottoms. The chart below shows a
daily Euro-Currency chart. I have added arrows on this chart
which identify the market swings up and down from April to
September 2004. When the market is making swings as seen on
the chart below the Breakout Oscillator works very well to
identify the approximate time of cycle tops and bottoms.
When the Breakout Oscillator forms a top above the upper
boundary line a market top is near. When the Breakout
Oscillator forms a bottom below the lower boundary line a
market bottom is near. On the chart below points A, B, C, D,
and E all identify turns in the Breakout Oscillator which
could be used to locate market pivots. The final point F on
this chart identifies a bottom forming in the Breakout
Oscillator right now. This bottom pivot could be used to
forecast that a cycle bottom in this market will occur in
the near future.
Below is another example of the Breakout Oscillator
correlating with a markets swing tops and bottoms. Notice
that this market is not trending but is forming swings. The
Breakout Oscillator can be used to locate pivot tops and
bottoms in this type of swinging market. I have added arrows
to this chart showing the markets swings up and down. The
tops and bottoms in the Breakout Oscillator at points A, B,
C, D, E and F all correlated with tops and bottom sin the
market. When the Breakout Oscillator forms a top above the
upper boundary it indicates a market top is also forming.
When the Breakout Oscillator forms a bottom below the upper
boundary it indicates a market bottom is forming. At point G
on the chart below the Breakout Oscillator is forming a top
above the upper boundary which indicates the market should
also be forming a top soon.
The traditional rules for using the Breakout
Oscillator are quite different than described above.
I do not use the traditional rules simply because they
do not identify a setup very often. The traditional idea for
using the Breakout Oscillator is to watch for the Breakout
Oscillator to move above the upper boundary and then move
down through both the upper and lower boundary in one
thrust. This should indicate the beginning of a market down
trend. On the chart below we see an example of this. The
Breakout Oscillator has moved above the upper boundary at
point A and then moves down through the upper and moves
below the lower boundary at B. This should identify the
start of a a downtrend. This setup in the Breakout
Oscillator does not happen very often. This method also sees
to work best on commodities and works less effective in
stocks.
The next chart shows two examples of the traditional
rules for the Breakout Oscillator. First at point A the
Breakout Oscillator is above the upper boundary and fall
below the upper boundary. Then in one thrust the lower
boundary is also broken at point B. This should indicate the
start of a down trend. Next at point C the Breakout
Oscillator is below the lowest boundary and breaks up above
the lower boundary and then above the upper boundary at
point D. This should mark the start of an uptrend. These
types of setups using the Breakout Oscillator to locate the
start of trend to not occur very often.
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