Indicator oscillator analysis used to analyze price movements in ranging or sideways conditions.
How to use Oscillator indicator analysis is when prices do not show a clear trend either bullish or bearish.
In other words, using indicator Oscillator Analysis is generally when the price of an asset moves horizontally or sideways (Ranging) or moves randomly (Choppy).
How to analyze in this way is a required indicator as a helpful tool.
Therefore, to understand indicator Oscillator Analysis.
It is first necessary to know that forex analysis tools can be technically divided into two categories:
- Chart patterns
- And indicators.
Chart patterns appear and can be seen on the price movement chart.
While indicators are basically the results of price and volume calculations as well as several other factors such as Money Flow, trends, volatility, and momentum.
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Indicator Oscillator explained
In forex analysis, indicators as a measurement tool to examine the things that underlie further price movements, with three-goal:
- Get an “Alert” when price momentum weakens or strengthens.
- Confirming the results of the forex analysis by combining with other tools.
- Forecasting future price movements.
In essence, the indicator serves to confirm the current price position as well as the basis for Buy and Sell signals.
Of the many forex indicators that are technical forex analysis tools, there are several indicators called Oscillator indicators or Momentum Oscillators.
These indicators are:
- RSI (Relative Strength Index)
- MACD (Moving Average Convergence Divergence)
- Stochastic Oscillator
- Momentum (Rate of Change)
- Commodity Channel Index (CCI)
- Money Flow Index (MFI)
- Parabolic SAR
- Williams% R (Williams Percent Range), etc
One important element in the indicators used for Oscillator Analysis is its ability to detect Overbought and Oversold conditions.
Indicator Oscillator Analysis The user will know in advance the price of a trading instrument “runs out of energy” at a high level by reading the value of the Oscillator has entered the Overbought area.
Likewise, the conditions when a trading instrument has been “sold too much” at a low price level by seeing whether the Oscillator value has entered the Oversold area.
How to use indicator oscillator alert end of the trend
Read also Popular indicator summary
An oscillator is an object that always moves back and forth from point A to point B.
The oscillator indicator works in a way when momentum starts to slow down, fewer buyers if in an uptrend or fewer sellers if in a downtrend, will give a signal to trade.
The oscillator indicator giving signals of changes in momentum is often an indication that the trend is currently weakening.
Each of the oscillator indicators is designed to signal the possibility of a trend reversal, where the previous trend has gone and the price is ready to change direction.
Example use indicator oscillator
In this example, we use the GBP / USD daily chart shown below.
In this pair, we use three oscillator indicators, Stochastic, Parabolic SAR, and RSI.
You can learn more if you have forgotten how to use the indicator in the previous chapter, please turn back.
From the chart above the three indicators give a buy signal towards the end of December.
If you take a trade at that time you will get a profit of 400 pips, a good amount.
Then, all three indicators again gave the same signal in January, Stochastic, Parabolic SAR, and RSI all gave sell signals.
And again you will get profit from the decline if you take action to open Sell according to the three indicators.
Again around mid-April, all three oscillators give another sell signal, after that the price drops sharply again.
And the chance will provide more profit if you act according to the signal given from the combination of the three oscillator indicators.
Example indicator oscillator messing up
However using the oscillator indicator doesn’t always give a perfect signal, sometimes it messes up our analysis.
We will again take an example in order to explain that combining several oscillator indicators can be confusing.
In the chart below, you can see that indicators can give conflicting signals.
You can see on the image above if Parabolic SAR gave a sell signal in mid-February while Stochastic showed a buy signal.
While the RSI also seems confusing because it does not give any signal either buy or sell.
Which should be followed?
As you can see in the second week of April, two indicators give Sell, RSI and stochastic signals, while Parabolic SAR does not give a signal.
And the price is still climbing up, if you open a Sell position then you will get a fairly high loss.
Then in middle-May, the three indicators again gave confusing signals, where Stochastic and RSI gave Buy signals while parabolic SAR gave Sell signals.
Again you will get a loss if you follow the signals from stochastic and RSI by ignoring signals from parabolic SAR.
Why is this so the indicator gives a different signal?
The answer is because of the different calculation methods for each.
Stochastic takes a period of high to low (in this case, every hour), but does not account for changes from one hour to the next.
The Relative Strength Index (RSI) uses changes from one closing price to the next.
While Parabolic SAR has its own unique calculations and can cause conflicts later.
And that is the nature of the oscillator, with its imperfections.
If the main indicator might give the wrong signal, we cannot avoid that.
If you get a mixed signal that is confusing, you better do nothing but take the best forecasting or no trade.
Since the chart does not meet all your criteria, do not force it to trade.
Still, so many chances ahead to try again.
The oscillator indicator is an indicator that mostly signals earlier before the trend starts to form.
So this can also be said to be a leading indicator.
Because of its signal early giving, it is possible to get maximum profit.
However, the possibility of getting fake signals is also high, because it appears ahead of the price.
Apart from that all, using oscillator indicators are still the choice of traders in conducting analysis to be alert when the trend will end.
Your experience in testing the oscillator indicator will provide valuable lessons in understanding the character of the indicator used.