What is behind the number 14 used in oscillators like RSI and stochastic?

[fernandok]

Hi, I'm new here. I trade futures. I know how to use those indicators and their calculations. I'm just curious about the meaning behind the number 14. When it comes to market cycles, usually the number 2 is used either to multiply or divide a cycle. One can study cycles of 5 or 10 trading days from 20 trading days (a month cycle), through moving averages of the same numbers in a daily chart. According to Murphy in his technical analysis book, "usually, when making an oscillator, you use half the number of a cycle". So, if you want to create an oscillator to study 20 days of price action (the "standard" cycle because of a month price action), you would set the oscillator to 10. Wilder in his book talked about the number 10 when explaining the RSI, but suddenly he used the number 14 and that's it. Actually, he was using an example of price changing from the day 14th ahead, but that was just an example. I didn't get what he was thinking. Maybe he thought that the average number of days of a single big movement in a daily chart is more like 14 instead of 10? The stochastic was created before the RSI and the number 14 was also recommened, although I didn't read about the author's original article because I didn't find it.

I mean, I know you want to use the standard value because that's what everybody is watching. I'm just curious if there's something else I'm missing. If the market was open 7 days a week, I would understand that is half a cycle of a month.

 

[1nvest]

Hi, I'm new here. I trade futures. I know how to use those indicators and their calculations. I'm just curious about the meaning behind the number 14. When it comes to market cycles, usually the number 2 is used either to multiply or divide a cycle. One can study cycles of 5 or 10 trading days from 20 trading days (a month cycle), through moving averages of the same numbers in a daily chart. According to Murphy in his technical analysis book, "usually, when making an oscillator, you use half the number of a cycle". So, if you want to create an oscillator to study 20 days of price action (the "standard" cycle because of a month price action), you would set the oscillator to 10. Wilder in his book talked about the number 10 when explaining the RSI, but suddenly he used the number 14 and that's it. Actually, he was using an example of price changing from the day 14th ahead, but that was just an example. I didn't get what he was thinking. Maybe he thought that the average number of days of a single big movement in a daily chart is more like 14 instead of 10? The stochastic was created before the RSI and the number 14 was also recommened, although I didn't read about the author's original article because I didn't find it.

I mean, I know you want to use the standard value because that's what everybody is watching. I'm just curious if there's something else I'm missing. If the market was open 7 days a week, I would understand that is half a cycle of a month.

He based it off the Lunar Cycle, which is 28 days..or rounded up by a few hours. is my understanding

 

[fernandok]

He based it off the Lunar Cycle, which is 28 days..or rounded up by a few hours. is my understanding

I've heard about that. But there are some days inside those 28 days that the market is close, so it wouldn't get all of those 28 trading days.

 

[1nvest]

I've heard about that. But there are some days inside those 28 days that the market is close, so it wouldn't get all of those 28 trading days.

the next new moon is on the 3rd September and then again on 2nd October. any of those dates could have been a weekend or bank holiday. the indicator measures the actual passing of time not how many opportunities there were to trade in that time..a month has still passed

 

[fernandok]

the next new moon is on the 3rd September and then again on 2nd October. any of those dates could have been a weekend or bank holiday. the indicator measures the actual passing of time not how many opportunities there were to trade in that time..a month has still passed

Thank you for telling me that. Could you tell me where Wilder talk about that? Is it in his "New Concepts" book?

Would you mind if I make another question? I'd like to know why the "passing of time" is more important in those oscillators. My system is based on a professional trader and recently I started to read about some concepts of technical analysis and understood many important factors of my system that I wasn't aware and that helped me to understand the market more in depth.

 

[1nvest]

Thank you for telling me that. Could you tell me where Wilder talk about that? Is it in his "New Concepts" book?

Would you mind if I make another question? I'd like to know why the "passing of time" is more important in those oscillators. My system is based on a professional trader and recently I started to read about some concepts of technical analysis and understood many important factors of my system that I wasn't aware and that helped me to understand the market more in depth.

I've never studied Wilder specifically, only cycles in general. Mainly JM Hurst who tracked cycle lengths ranging from 5 days to 18 years. and every one (cycle component) ignores the trading day. Most cycle software, and certainly specific to Hurst, you'll find they use software that track calendar days, mimicking weekends. all i know he was into planetary cycles and cycle highs and lows can take place outside of our trading times.
Hurst, although he never used oscillators, he used "displaced" time, but that too was to be able to tell when the cycle high or low was in place. called the future line of demarcation, but was designed to do what the oscillator did. again, all based on calendar days. so 14 being a half cycle to 28 days...
my question would be, given that (if it was) based on 14 days..why then would you still use a 14 period on an hourly chart?
its just a setting at the end of the day and for you or me to use what i feel works for what im trying to do. if was going to devise a standard setting for something that isnt standard at all...i guess only welles can possibly tell us that.

 

[fernandok]

I've never studied Wilder specifically, only cycles in general. Mainly JM Hurst who tracked cycle lengths ranging from 5 days to 18 years. and every one (cycle component) ignores the trading day. Most cycle software, and certainly specific to Hurst, you'll find they use software that track calendar days, mimicking weekends. all i know he was into planetary cycles and cycle highs and lows can take place outside of our trading times.
Hurst, although he never used oscillators, he used "displaced" time, but that too was to be able to tell when the cycle high or low was in place. called the future line of demarcation, but was designed to do what the oscillator did. again, all based on calendar days. so 14 being a half cycle to 28 days...
my question would be, given that (if it was) based on 14 days..why then would you still use a 14 period on an hourly chart?
its just a setting at the end of the day and for you or me to use what i feel works for what im trying to do. if was going to devise a standard setting for something that isnt standard at all...i guess only welles can possibly tell us that.

Thank you very much. Hurst was mentioned in the Murphy's TA book. I should take a look at the work of Hurst to understand that topic better. But yeah, I use RSI and stochastic in every chart because they can be useful in very specific situations. The lower the time frame, the more uncommon is to be useful, so most of the time I'm more focused in the 15 minutes or above. But as you said, the number 14 itself doesn't make much sense other than in the daily chart, although I also use it in the 1 or 5 minute chart, lol. In the end, it seems that it's more about the amount of price closes itself than a number connected to market cycles. Like, I want to watch the oversold or overbought behavior, as well as the divergence, and a number between 10 a 20 candles seems to catch that objective smoothly. When I was reading the book of Wilder, implicitly, I felt that, and kind of got that feeling in practice too.