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A typical oscillator is a technical analysis tool, that oscillates between that moves back and forth between two extremes (points). These two extreme values for signaling overbought or oversold conditions. For example, as the value of the oscillator approaches the upper extreme value the security (for example futures) is deemed to be overbought and as the oscillator approaches the lower extreme the security is deemed to be oversold.
These indicators are designed to signal a possible reversal, where the previous trend has run its course and the price is ready to change direction. Oscillators helped traders when they cannot easily detect any discernible trends. Traditional oscillator indicators are very useful when there is no clear trend.
There are two ways of using an oscillator. One is to determine turning points, tops and bottoms, and this style is usually useful while trading ranges only. Oscillators are also used trending markets, but in this case our only purpose is joining the trend. Highs or lows, tops or bottoms are used for entering a trade in the direction of the main trend.
The most common trading oscillators are the stochastic, RSI, MACD and CCI. Also we’ll look Momentum and Average True Range oscillators