Oscillators are technical analysis indicators that can inform about a price reversal in advance. Most often, traders use oscillators in the sideways market to receive signals without a clearly defined trend. Most indicators of this type are built in a separate window from the chart and represent lines that fluctuate in a specific range.
We can divide oscillators into two groups:
1
Leading oscillators
2
Lagging oscillators
Leading oscillators indicate a price reversal or the beginning of a new trend even before the signal itself appears on the market. As a result, they are ahead of the price, and traders can use these indicators very effectively in their trading sessions.
The most common leading indicators are:
1
RSI
2
Stochastic
3
CCI
Lagging oscillators are indicators that follow the price. Simply put, the price changes first, and only then the indicator shows a trend. So, yes, you will not be able to grasp the very beginning of the movement. Still, these indicators will indicate changes in the market with high accuracy.
Lagging oscillators include:
1
Bollinger Bands
2
MACD
Pros and cons of oscillators. Oscillators have their pros and cons, which you need to know about:
1
Oscillators accurately show the situation on the market: they determine the beginning of a new trend and reversal points
2
Oscillators are very easy to use. These indicators allow you to predict price movements in advance
3
Oscillators are perfect for determining the decrease in trend strength
The disadvantages of oscillators include the quality of their signals. For example, many oscillators do not work well in trending price movements. It is also worth noting the moments when the sideways movement turns into a trend – at this time, oscillators often give false signals.
Another disadvantage of oscillators is the lack of ideal settings. Yes, there are recommended settings, but it is very often necessary to reconfigure it to the current situation on the market for the indicator’s best performance.
Analysts highly recommend beginners configure the tool according to the tips of the strategy they apply. And if you want to get a strategy from us, hit the “like” button! After we receive 50 likes, we will publish a unique strategy using oscillators.