Trading With Oscillators: RSI, Stochastics, MACD

Oscillators are momentum indicators typically used with other technical analyses. They help individuals make trading decisions. Analysts consider them advantageous tools when they are struggling to find a clear trend in a company’s stock price.

The most common oscillators are the Relative Strength Index (RSI), stochastics, and Moving Average Convergence Divergence (MACD).

The RSI, a leading oscillator, gives technical traders signals about bullish and bearish price movements. It is commonly plotted below the graph of an asset’s price. Once the RSI is over 70, it’s considered overbought, while below 30 is oversold. Its line crosses below the overbought line or above the oversold one, signaling to buy or sell. RSIs are more suitable in trading ranges than trending markets.

Another leading oscillator is stochastic. It is a popular technical indicator that generates overbought and oversold signals. Stochastic oscillators rely on an asset’s price history and tend to vary around mean price levels. They measure asset price momentum to determine trends. On a scale of 0 to 100, a measurement of over 80 means an asset is overbought, while below 20 means it is oversold.

MACD, a lagging oscillator, is a trend-following momentum indicator that shows the connection between two moving averages of a security’s price. It helps stock, bond, and commodity traders identify trade entry and exit points.

Note that no oscillator can guarantee complete success; there are just tools. Sole reliance on these oscillators cannot determine sure wins. Also, consider using them with other technical analysis tools, market sentiment, and other helpers to make informed trading decisions. Lastly, prepare for unexpected market movements or fluctuations and adjust your strategies.