Oscillators are a tool used in technical analysis to study the movements of the financial markets. Together with moving averages, oscillators are the most used indicators within the analysis of a chart.
Oscillators are so called because their value is not stable, but oscillates between a minimum and a maximum. For technical analysis they are one of the most important parameters and can make the difference for the success of a positioning.
Oscillators are a category of indicators used in technical analysis to understand the price trend and the changes that prices will undergo in the future. These tools allow traders to identify entry points for a rise or rebound.
By using oscillators the right way, investors can figure out the best time to open or close a position.
The main purpose of using oscillators is in fact to be able to predict trend changes before they occur, describing the strength of a trend. The category of oscillators, for this reason, is considered more reliable in times of side market.
Oscillators also indicate when we are in a market imbalance phase, such as when a price is growing too fast. In this case, the oscillator indicates the strength of the trend and therefore provides information on the possible decrease (or not) of the overbought on the market.
Oscillators can also be used to try to find divergences between the indicator and the market price or volume.
Among the most important oscillators we find:
- * Bollinger Bands;
- * Fibonacci retracements;
- * Moving Averages;
- * momentum;
- * stochastic indicator.
Given the predictive nature of oscillators, many traders tend to operate following the oscillator when it manifests a signal two or more times. Very often, in fact, oscillators can indicate false signals.
