EURUSD 1.1773 USDJPY 112.14 USDCAD 1.2385 EURCZK 26.034 USDCZK 22.107 EURPLN 4.2867 USDPLN 3.6409
EURUSD 1.1773 USDJPY 112.14 USDCAD 1.2385 EURCZK 26.034 USDCZK 22.107 EURPLN 4.2867 USDPLN 3.6409

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Oscillators are very useful instruments showing the dynamics of price action

Rule of thumb

While oscillators can provide valuable information during non-trending periods, the trend indicators tend to outperform them when there is any significant tendency on the market

 

The whole art is to tell which of the tools should be applied in the actual situation

Oscillators are popular amongst traders following technical analysis, as they reflect how fast prices change, as well as the direction in which they are heading.  Tools such as price formations are aimed at analysis of trend and its possible reversals, and oscillators try to explain the price dynamics by referring to “overbought” and “oversold” market conditions.

 

technical analysis - oscillators

 

Typically, oscillators reflect the market price changes in relative terms – in respect to some values adopted as  boundaries, between which the oscillation takes place, depending on the construction of a given instrument. As the price moves close to the extreme values of such a range, the market is considered to be “overbought” – typically in the case of upper parts of the range, or “oversold” – in the case of  lower boundaries.

 

The most basic method of interpretation of oscillators refers to the oversold/overbought levels – a market that is oversold is expected to regain at least a part of the losses, whereas the market that is overbought is considered to retrace back in  a short time.

 

Signals can be provided also through so called divergencies – situations when the movement of  an oscillator does not confirm the movement on the corresponding market. It is assumed that in such a case the market may retrace in the direction indicated by  an oscillator.

 

oscillators analysis

 

Some of the oscillators can also be analysed in the same way as a price chart. In this respect trends, trendlines and technical formations can be identified, such as channels or triangles. Results from such an analysis may indicate the possible movement of the given oscillator, and consequently the underlying market.

 

Oscillators combined together with other tools, such as trend indicators or price formations, may provide a detailed insight into the situation on a given market. It is considered that oscillators perform better when horizontal trends are observed, while providing less reliable signals in the case of fast moving trends. 

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