4 Types of Technical Oscillators and their Functions

Home / Forex / 4 Types of Technical Oscillators and their Functions

4 Types of Technical Oscillators and their Functions

Regardless of who you are, you must find a way to make money and earn a living. And you can make enough cash trading online and live the life you have always envisioned.

However, to succeed in forex trading, you must fully understand forex market dynamics, believe in your analysis, and strictly adhere to your trading plans’ rules.

When trading in forex, ensure your head is clear, and you are making rational and informed decisions.

Did you enjoy watching martial arts like I did when you were growing up? I loved watching Rock and John Cena in WWE wrestling. Apart from Rock’s signature move ( the people’s elbow) and John Cena’s A A ( attitude adjustment), none of them depended on a single action to defeat their opponents. They used a combination of many moves to pin down all the bad guys.

Forex trading is the same. It’s an art, and as a trader, you have to master how to combine and use the tools available to create a system that will work for you.

That’s where technical oscillators come in.

What are Technical Oscillators

An oscillator is any data or object that moves backward and forwards between two points.  That is to say, and it’s an object that will always fall anywhere in the middle of point A and point B. Do you get the gist? Alright.

Let’s see how technical oscillators work and how you can use them to get the upper hand.

Types of Oscillators

  • Relative Strength Index
  • Rate of change
  • Momentum
  • Moving Average Oscillator (MACD)

Oscillators function under the assumption that as the price momentum starts to slow, little buyers ( if the trend is going up), a small number of sellers ( if the price is going down) are ready to trade at the current price.

Changes in momentum is often an indicator that the existing trend is growing weak. 

All these indicators are designed to indicate a potential trend reversal, where the preceding trend had continued for a time, and the price can now change direction.

 It’s critical to understand that oscillators will not always give you the correct signals. Sometimes they’ll give you conflicting results. For instance, one could provide a sale sign while another indicator is giving you a buy signal at the same time.

That’s why it’s advisable to use a combination of tools and know-how to interpret them correctly.

Never trade according to which side of the bed you woke up from. Always have a strategy and use the trading tools available.

Everything you master about forex trading is like adding a valuable tool to a trader’s highly sought toolbox. Losing a trade feels like someone just ripped your heart out of your chest. So, you need all the help you can get to win trades.

Your trading tools offer you a great chance of making the right trading decisions. But you have to understand which tools to use and when to use them.

Here are some of the popular chart indicators you can use to help you win trades.

MACD

Traders use MACD for catching trends early on and also help them see trend reversals.

It has two moving averages.  (1 slow, one fast) Some vertical lines are referred to as a histogram, which is used to measure the distance between the two moving averages. It shows the moving average of other moving averages but not the price moving averages.

 It has one major downfall. MACD’s is slow as it uses very many moving averages.

One of the best ways to use MACD is to wait for the fastest line to go “under” or “over” the slowest line and enter the trade correctly as it indicates a new trend.

Parabolic SAR

A Parabolic SAR oscillator is created to mark reversals. Thus the name Parabolic stops and reverses.  It’s a bit easy to interpret as it only issues bearish and bullish signals.

Always know that if the dots are over the given candles, it means you can enter a sell order.

And if the dots are under the candles, it’s a buying indicator. You can enter a buy order.

These are some of the best tools you can use in trending markets that comprise downturns and long rallies.

Stochastic

Stochastic is used for indicating overbought and oversold market conditions.

If the moving average lines are over 80, understand that the market is now overbought, and you should start looking for opportunities to sell. If the moving averages are under 20, know that the market is oversold, and it’s time to buy.

Wrapping Up

Forex trading can be stressful at times. So, avoid emotional trading at all times. The risk of loss is always present whenever real cash is changing hands. Base all your trades on well-thought strategies and tactics. Stay focused on fundamental and technical factors and markets always.

LEAVE A COMMENT

All fields are mandatory.