What is an Oscillator? An oscillator is anything or data that oscillates or moves between two points up and down.
In other words, it is something that is always somewhere between point A and B.
Think about when you press the shift button on your fan.
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Consider technical indicators as well. It is as if the status of the fan is “on” or “off”.
More specifically, an oscillator usually emits a “buy” or “sell” signal, except when the oscillator signal is not very clear at the end of the buy / sell range.
Are you not familiar with oscillators? It should be so!
The Williams Index, the Stochastic Indicator, the Parabolic SAR, and the RSI are all oscillators.
Oscillators operate on the assumption that as soon as momentum or acceleration slows down, fewer buyers (if uptrending) or fewer sellers (if uptrending) are willing to trade at the current price.
A change in momentum is often a sign of a weakening trend.
Each of these indicators is designed to signal a possible reversal of the trend, or in other words, where the previous trend is so-called tired and the price is ready to change direction .
A few examples of how oscillators work
Let’s look at a few examples.
We put all three oscillators together in the GBP / USD daily chart. Remember when we talked about how to work with Stochastic, Parabolic SAR and RSI?
If you do not remember, review the previous lessons!
Anyway, as you can see in the chart, all three indicators issued a buy signal in late December!
Getting this deal would make a profit of about 400 pips. ایولا!
What is an Oscillator? How to use the oscillator at the end of the process
Then, in the third week of January, Stochastic, Parabolic SAR and RSI all traded.
And given the long decline of the next three months, if you were to sell, you would be hunting a lot of pipes.
Around the middle of April, all three oscillators sent another sell signal, after which the price experienced another fall.
Now let’s take a look at the same oscillators when they sabotage, just to know that these signals are not great.
An example of an oscillator error signal
In the diagram below you can see that the indicators can provide conflicting signals.
For example, Parabolic SAR sent a signal in mid-February, while Stocastic gave the exact opposite signal.
Which one should be followed?
Well, RSI seems to be as undecided as you are, because at that time it did not give any buy or sell signal.
What is an Oscillator? How to use the oscillator at the end of the process
Looking at the chart above, you can quickly see that many incorrect signals appear and are output.
During the second week of April, both Stochastic and RSI sent sell signals while Parabolic SAR did not issue sell signals.
The price goes up and down, and if you sell immediately, you might lose.
If you followed the buy signals from Stochastic and RSI and ignored the sell signal from Parabolic SAR, you would have lost more in mid-May.
The reason for the signal contradiction of the oscillators
What happened to such a good set of indicators?
The answer lies in the method of calculating each of them.
Stochastic operates on a ceiling-to-floor range over a period of time (in this example daily), but does not involve changes from one candlestick to another.
The Relative Strength Index (RSI) indicator uses the change in the closing price (close) to the next closing price (close).
The star parabolic indicator has its own calculations that can lead to more inconsistencies.
This is the nature of oscillators. Their assumption is that any particular price move always leads to a return.
Of course, this is not true. Prices can move in one direction for a long time.
Despite the knowledge that a leading indicator may give the wrong signal, but there is no way to block them. They should always be considered.
If you receive mixed signals, it is better not to do anything than to trade on the “best guess”. If a chart does not meet all your criteria, do not insist that you must trade!
Look for other trades that meet your criteria well.
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