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Oscillators

How Oscillators Work

Oscillators are typically used in conjunction with other technical analysis indicators to make trading decisions. Analysts find oscillators most advantageous when they cannot find a clear trend in a company’s stock price easily, for example when a stock trades horizontally or sideways. The most common oscillators are the stochastic oscillator, relative strength (RSI), rate of change (ROC), and money flow (MFI). In technical analysis, investors find oscillators to be one of the most important technical tools to understand, but there are also other technical tools that analysts find helpful in enhancing their trading, such as chart reading skills and the technical indicators.

If an investor uses an oscillator, they first pick two values; then, placing the tool between the two, the oscillator oscillates, creating a trend indicator. Investors then use the trend indicator to read current market conditions for that particular asset. When the investor sees that the oscillator moves toward the higher value, the investor reads the asset as overbought. In the opposite scenario, when the oscillator trends towards the lower value, the investors consider the asset oversold.

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