10 Tips to Getting Started With Technical Analysis

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Tip #10: Oscillators

I look very closely at several oscillators. Simply put, an oscillator is a tool that is banded between two extreme values and built with the results from a trend indicator for discovering short-term overbought or oversold conditions.

To understand how oscillators work, think about the movement of an oscillating fan, as they simply look at a limited range of historical trading "area." As the value of the oscillator approaches an extreme upper value, the asset is often said be overbought. As it nears the lower extreme, analysts will often say it is oversold.

Oscillators are the most helpful when no clear trend is discernible in a particular security or even in the overall market, like when we see sideways (or flat) movement.

Some of the more common oscillators that you may have heard analysts talk about are the stochastic, the Relative Strength Index (RSI), the Money Flow Index (MFI) and the momentum oscillator. Personally, I primarily use three oscillators to provide signals on direction: the Williams Percent Range, the Aroon Oscillator and the Price Percentage Oscillator (PPO).

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