Trend Deviation (Price Oscillator)

A trend deviation indicator is obtained by dividing or subtracting a security's price by a measure of trend, which is usually a form of MA. It is also possible to base a trend deviation using linear regression techniques. However, we will concentrate on the MA method here. This approach is also called a price oscillator in some charting packages.

There are two methods of calculation: subtraction and division. Division is preferred, since it is more reflective of proportionate moves. Since the average represents the trend being monitored, this oscillator indicates how fast the price is advancing or declining in relation to that trend. An oscillator based on a trend-deviation calculation is, in fact, a horizontal representation of the envelope analysis, but in this graphic format, it also shows subtle changes of underlying technical strength and weakness.