Partner With Us NRI

Open Free Demat Account Online with ICICIDIRECT

what is derivatives oscillator and its uses ?


The history of technical analysis of financial trends can be traced back for centuries. In Europe, Joseph de la Vega began observing the Dutch financial markets in the 17th century. The Candlestick pattern was developed in 18th century Japan by Homma Munehisa. In the early 20th century, Charles Dow observed the American stock market, which later led to the formulation of the Dow Theory. Richard W. Schabacker later continued Dow’s work. The book Technical Analysis of Stock Trends, now considered one of the seminal works in financial theory, was published by Robert D. Edwards and John Magee in 1948. George Lane developed the first accurate technical analysis indicator in the 1950s. Since then, there have been newer developments, including the RSI oscillator, that now play a central role in financial markets.

What is a Derivatives oscillator?

A derivatives oscillator is a trading indicator used to determine the market fluctuations of Derivatives. It is essentially a more advanced form of the relative strength indicator (RSI) that applies moving average convergence divergence (MACD) principles to a double smooth RSI. Constance Brown developed it in her book Technical Analysis for the Trading Professional.

How is the Derivatives oscillator derived?

The Derivatives oscillator is calculated in the following steps:

  • First, the 14 periods RSI, double smoothed with moving averages, is calculated.
  • The first RSI is expressed as RSI = Average Gains/Losses.
  • That is followed by applying an exponential moving average to the RSI. It is expressed as Smoothed RSI = EMA (RSI, n1), where n1 is a bar period of EMA.
  • The EMA has applied again to the now smoothed RSI. It is expressed as Double Smoothed RSI = EMA (Smoothed RSI, n2), where n2 is a bar period of EMA.
  • The MACD is derived by subtracting 12 periods EMA from 26 periods EMA and applied to the double smoothed RSI as a signal line, expressed as Signal Line = SMA (Double Smoothed RSI, n3).
  • Finally, the Derivative oscillator is calculated by subtracting the double smoothed RSI and its signal line, expressed as Derivative Oscillator = Double Smoothed RSI - Signal Line.

Usage of Derivatives oscillator

  • Derivatives oscillator is simple to use.
  • When the oscillator shows an ascending value, from negative to positive, it is then interpreted as the signal for using bullish strategies.
  • When the oscillator shows a descending value, positive to negative, it is then interpreted as the signal for using bearish strategies.
  • The oscillator can also determine the strength of a trend by looking at the magnitude of its positive or negative value.

Limitations of Derivatives oscillator

Limitations of the Derivatives oscillator are as follows:

  • The Derivatives oscillator can show a false positive wherein it signals a possible reversal of a trend, but that reversal never happens.
  • The Derivatives oscillator works on past data. It does not account for real-time data. Thus, the oscillator does not provide a very accurate predictive value.


The Derivatives oscillator resembles a formidable instrument for analysing financial trends. However, its reliance on past data and inability to account for the present-day makes it somewhat limited. Thus, traders may choose to work with more than one oscillator, combining the Derivatives oscillator with others for more sophisticated trend analytics. Ultimately, the Derivatives oscillator resembles a powerful analytical tool. 


ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

Most Popular

  • 13 May 2022
  • ICICI Securities

The Five-Point Financial Planning Checklist For Your Family

Whether you just got married or planning to have a baby or have dependents, you should have financial plans for every stage in your life to ensure a secured future for your family members. Here are five things you can do financially for your family.   

  • 12 May 2022
  • ICICI Securities

What is a Zero Coupon Bond?

You get fixed returns in the form of interest until maturity when you invest in a bond. Zero-coupon bonds work a little differently. In this article, find out what zero-coupon bonds are, their advantages and whether you should invest in them. 

  • 12 May 2022
  • ICICI Securities

What are Cross Currency Pairs?

The forex market is the largest financial market globally. Currency trading is a lucrative and booming business. While most currencies trading happens in relation to the US Dollar, some don’t. That forms the basis of cross currency pairs. Here’s what you need to know about it. 

  • 12 May 2022
  • ICICI Securities

Investing principles from Benjamin Graham: The Father of Value Investing

Benjamin Graham was a British born economist, professor, and investor who taught at Columbia University. He was also a mentor to some of the most famous investors of the 20th century, including Irving Khan, John Templeton, & Warren Buffett. Buffett called him "the second most influential figure in his life, only after my father". 

  • 12 May 2022
  • ICICI Securities

How to Invest in Nifty 50?

The Nifty 50 is the benchmark index of the National Stock Exchange. It represents the 50 largest companies listed in India. Investing in the Nifty 50 can be a good idea for those looking to make index-linked returns. Here’s how you can invest in the index. 

  • 12 May 2022
  • ICICI Securities

Investment philosophy of Cathie Wood: The most powerful woman on Wall Street

Catherine Duddy Wood, also called Cathie Wood, is an investor who primarily invests in disruptive technologies and is the founder, chief executive officer, and chief investment officer of ARK Investment Management, LLC, an investment management firm mostly active in the United States.

  • 11 May 2022
  • ICICI Securities

How to Use Technology to Improve Your Finances

Technology has made life simpler for everyone. In the realm of personal finance, technology has streamlined many processes—from budgeting to automating your payments. On National Technology Day, let’s look at how technology has transformed our finances. 

  • 11 May 2022
  • ICICI Securities

How to Invest in your Every Goal with Mutual Funds?

Each of us is unique. We have different needs and goals in life. Some of us can ride along swinging markets, while some may need a relatively conservative investment tool. 

  • 11 May 2022
  • ICICI Securities

Four Reasons Why Entrepreneurs should Invest in Equity Mutual Funds

Equity mutual funds provide growth opportunities not just for individual investors but also for entrepreneurs and corporates. They make excellent investments for anyone looking for wealth creation. This article will give you four reasons why businesspeople should consider investing in equity mutual funds.