Osciallator referes to several technical analysis tools for chart reading. All of them might be useful, however check them out and see which ones you like and feel more comfortable with.
I’ll share the oscillator which I use too below. However they might change from time to time.
What is an Oscillator
An oscillator is used to figure out if the crypto currency or stock that we are trading is oversold or overbought. Remember that it’s just a short term indicator.
If the oscillator’s value reaches the upper limit, it signifies that it’s overbought and probably it’s time to sell it. However if it reaches the bottom then it’s underbought and probably time to buy more if you can. But again, remember that it’s a short term indicator.
Why are we emphasizing on the fact that it’s short term? Well because of 2 reasons:
- It’s only affective if the trend don’t change. If it does change in any direction, then it’s ineffective and unreliable.
- It’s for short term analysis and for quick decisions on an item which is moving sideways and horizontally.
So remember, it’s not reliable when the line reaches the top or bottom and trend keeps on going. We can’t predict if the trend is forming or ending with this indicator.
Examples of Oscillators
Good examples of oscillators are:
- RSI
- StochasticRSI (or StockRSI)
- MFI
- ROC
RSI and StochasticRSI are good ones. Usually RSI should be good enough to predict the oversold or undersold status of the stock or crypto currency. But only when they’re moving horizontally or sideways!
When the value of the indicator reaches above 70, then we’re probably in overbought range. So Don’t buy it, until you’re sure that it’s not moving horizontally, rather an upward trend is forming.
Similarly if the indicator reaches under 30 percent, then it’s oversold. So don’t sell it at this price if you intended to, unless you’re sure that it’s not moving sideways and instead going into a downward trend, and you might go a lot below this current oversold price.
As long as the price of the current item remain in the established range for that item, then the signals can be considered valid. But not in breakouts! It’s very important to know that’s why it’s repeated!
Let me know if you use any other oscillator so that we can include it along with your review.