Oscillators And Indicators
Oscillators and indicators are technical analysis tools which help traders objectively interpret and predict the future direction of the market.
Introduction:
There are a huge number of technical indicators and oscillators for the trader to use depending on what he wants to achieve. The purpose of oscillators and indicators is to take the subjectivity out of interpreting a price chart and enable the trader to objectively analyze the price action and predict the future movement of the markets.
Oscillators and Indicators:
Below are the most commonly used oscillators and indicators.
Moving Average
The most popular indicator of them all is of course the moving average. The standard use of a moving average is to use it as an indicator of whether the trend in the market is bearish or bullish. Most traders use the 200 period moving average to indicate the trend. If the price action is above the 200 moving average the forex currency is appreciating and if the price action is below the 200 moving average it is depreciating.
Relative Strength Index
This is a popular oscillator which is used for identifying when a market is about to turn and change trend direction. The oscillator defines overbought or oversold conditions when the oscillator line is above 70 (overbought) or below 30 (oversold).
Stochastic
This oscillator is usually used for short periods of under a day and is used to identify when the currency is at the top of its price range, the oscillator line is above 75, or at the bottom of its price range, when the oscillator line is below 25.
MACD
The MACD is a very popular indicator used to indicate bullish or bearish trends. This indicator is not very useful and often lags very badly on the short time frames. However if used on longer time frames of a day or more its lagging feature is less prominent and it can be successful in helping a trader predict a change in trend.
Commodity Channel Index
The CCI is also a popular oscillator which identifies overbought and oversold situations in the market. The levels on the oscillator are from 0 to + 300 above the centre line or 0 to 300 below the centre line. A level above 200 is seen as the overbought area and the level below -200 is seen as the oversold area.
Trend Lines
Trend lines are indicators which are drawn on a price chart and connect the tops and bottoms of prices. A trend line which is drawn when the prices are moving up should be drawn so that at least two or more of the highest price bottoms are touching the line.
This line acts as a support line and if the price breaks through the line it is an indication that the trend is changing direction. The converse is true for a trend which is downward in direction. The trend line should be drawn so that at least two of the highest price tops are touching the line.
This line acts as an resistance line and if the price breaks through the line it is an indication that the trend is reversing itself.
Article source: etoro.com