An Introduction to Oscillators


Oscillators

are indicators that are used when viewing charts that are non-trending.

Moving averages (MA)

and trends are paramount when studying the direction of a stock. A technician will use oscillators when the charts are not showing a definite trend in either direction. Oscillators are thus most beneficial when a company’s stock either is in a horizontal or sideways trading pattern or has not been able to establish a definite trend in a

choppy market

.

business, investing, trading, forex

When the stock is in either an

overbought

or

oversold

situation, the true value of the oscillator is exposed. With oscillators a chartist can see when the stock is running out of steam on the upside—the point at which the stock moves into an overbought situation. This simply means that the buying volume has been diminishing for a number of trading days, which means traders will then start to sell their shares. Conversely, when a stock has been sold by a greater number of investors for a consistent period of time ranging from one to six months or longer, the stock will enter an oversold situation. (See also:

The Basics of Money Flow


.)

The Relative Strength Index

The Bottom Line

   

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