The oscillator is one of the most popular and widely used types of technical indicators. It can be applied to any timeframe, any asset class, and is easy to combine with other indicators.

Oscillating indicators, although formed in a different way, have certain common characteristics between them. Most oscillating indicators move between two extreme points and provide information about price movements or strength. They help traders find reversals, support, or price momentum and especially overbought signals to find trading opportunities. However, traders need to use them properly to really bring into play the value of oscillating indicators.

The centerline of the indicator can be considered the equilibrium point of the market. When the oscillating indicator crosses the central point, it shows that the bull market turns down and vice versa. This is also how traders identify a trend change.

Oscillator indicators that traders often use are Stochastic, RSI, MACD, and a few others.

You can see the figure below, the chart includes MACD, Stochastic, RSI, and Ultimate. You can see that there are a lot of similarities. Each provides a unique view of the market, but in the end, they give similar signals. The arrows indicate times when the indicators moved in unison for similar oversold signals.


So it is advisable for traders to only use 1 or 2 of these indicators. And learn how to use them carefully, understanding them deeply will help you take advantage of them to make money in the market.

Also wordy, now we go to the main content of the article. Here are two important principles when using oscillators.

Rule # 1 - Use only trend signals.

The signals of the oscillator will be more reliable when using trend trading. During an uptrend, a buy signal is when the oscillator moves lower and forms a bottom. This decline does not always move to the oversold zone. Because sometimes, in a market with a strong trend, a drop can be very shallow and almost goes into the overbought zone. Which is sometimes the resistance support on the chart. Trading signal as shown below:


Rule # 2 - Beware of false breaks as they give different signals

As the price moves upwards of the range in the sideways price zone, the oscillators will also provide bullish signals until it reaches resistance. At that point, keen traders can wait for a signal to drop and trade a reversal with the profit target at the bottom of the price range.

However, this technique is a bit risky as more false breakout signals are possible. So if you only use the oscillator to trade in these circumstances there won't be enough confirmation. Instead, you should use it with the confirmation of price action or other trading techniques to reconfirm the breakout of the support range of the sideways price range.

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