Using the 70 and 30 Lines to Generate Signals

Horizontal lines appear on the oscillator chart at the 70 and 30 values. Traders often use those lines to generate buy and sell sig­nals. We already know that a move under 30 warns of an over­sold condition. Suppose the trader thinks a market is about to bottom and is looking for a buying opportunity. He or she watches the oscillator dip under 30. Some type of divergence or double bottom may develop in the oscillator in that oversold region. A crossing back above the 30 line at that point is taken by many traders as a confirmation that the trend in the oscilla­tor has turned up. Accordingly, in an overbought market, a crossing back under the 70 line can often be used as a sell signal