The Projection Oscillator is a by-product of Dr. Mel Widner's Projection Bands. In essence a slope-adjusted Stochastic, the Projection Oscillator shows the relationship of the current price to its minimum and maximum prices over time. Unlike the Stochastic Oscillator, here the minimum and maximum prices are adjusted up or down by the slope of the price's regression line. It is this adjustment that makes the Projection Oscillator so responsive to short-term price moves. Perhaps the best way to understand the relationship between the Projection Oscillator and Projection Bands is the knowledge that the Oscillator shows where the current price rests between the current location of the bands. A value of 0 indicates that prices are touching the bottom band, a value of 50 indicates that the current price is exactly in the middle of the two bands while a value of 100 indicates that prices are touching the top band.
Three common ways to interpret the Projection Oscillator:
Buy when the oscillator falls below a specific level (e.g., 20) and then rises above that level. Sell when the Oscillator rises above a specific level (e.g., 80) and then falls below that level.
Buy when the oscillator crosses above a trigger and sell when the oscillator crosses below it. You may want to qualify your trades by requiring that the crossovers occur above the 70 level or below the 30 level.
Consider selling if prices are making a series of new highs yet the oscillator fails to surpass its previous highs. Consider buying if prices are making a series of new lows and the oscillator fails to surpass its previous low. Again, you may want to qualify your trades by requiring that the divergence occur above the 70 level or below the 30 level.