What is an Oscillator?

Oscillators in trading are one of the leading indicators – they allow to diagnose signals indicating a potential change of trend in the future. Properly constructed oscillators allow you to measure the momentum and strength of the current trend. They also allow to determine whether the instrument is undervalued or overvalued.

 

What is a stochastic oscillator?

The stochastic oscillator is an indicator that is very popular among traders involved in technical analysis. Based on the closing price and daily fluctuations, it shows the direction in which the trend will go in the near term. When the closing price is close to the upper limit of fluctuations, it can indicate an upward trend.

How to use oscillators in the forex market?

Knowing the potential direction in which the trend will go is easy to make the right investment decision. If we predict that the trend will be upward it is a good time to open a position, otherwise it may mean that we should hold off on buying assets or sell our holdings.

What are the types of oscillators in trading

The simplest and most commonly used oscillator is the stochastic oscillator. More complicated and less frequently used oscillators are, for example, the MACD indicator or the CCI oscillator.

What are the disadvantages of oscillators in trading?

Unfortunately, oscillators are not a perfect indicator. Their major disadvantage is that they are mainly intended for short-term investors using technical analysis. Unfortunately, the results of stochastic oscillators are often incorrect or indicate a signal too late to make a proper investment decision. Oscillators are of particular value when the value of an asset changes in a sideways trend. In uptrends and downtrends, they perform much worse – they do not allow for a sufficiently quick decision.