Oscillators

Oscillators are a subset of indicators that fluctuate within a fixed range (e.g., 0-100) to identify overbought and oversold conditions. They are especially useful in sideways or ranging markets where trends are unclear.

• How Oscillators Are Used:
  • Best for range-bound markets where price moves within a predictable range.
  • Helps traders time market reversals before the trend shifts.
  • Primarily leading indicators, providing early trade signals.

• Examples of Oscillators in Action:
  • The RSI crosses above 70 → market is overbought, signaling a potential price drop.
  • The Stochastic Oscillator falls below 20 → market is oversold, indicating a possible upward reversal.

• Limitations:
  • False signals in strong trends – an overbought market can stay overbought longer than expected.
  • Works poorly in trending markets without additional confirmation from other indicators.