What is Forex oscillators ?

Almost every one of us at the stage of the first currency speculations is prejudiced against the changes in the exchange rate of Forex currency pairs. Beginners cannot get rid of the notion of "too expensive" or "too cheap". As we know the market does not accept such notions, trends may last for years constantly forming new highs or lows.

In such difficult conditions a trader needs a tool, which can help to analyze the market, providing a certain advantage when opening deals. One of such instruments is the oscillators, which everybody has probably heard of. Today we will analyze what oscillators are, how to interpret their signals in trading and also look at the strengths and weaknesses of this type of indicators.

Overbought and oversold or what oscillators show
For example, no one could have foreseen that the British currency, which was trading at 2:1 against the US dollar, would ever be close to parity. As the famous postulate says - "You can't guess the bottom and the top of the market". Nevertheless, in technical analysis there are concepts of overbought and oversold.

They appeared thanks to a special class of indicators called "Oscillators". Unlike other instruments of technical analysis, their curves do not follow the trend indefinitely, but fluctuate within a strictly limited range of 0-1 or 0-100. Reaching the ceiling is an overbought zone, and if it goes down to zero, the market is oversold.

The fluctuation of the curve in a hard range is specified by the formula of the indicator, where the current price is divided by the maximum value of the range in the chosen period. In most cases, the instrument curve denotes the position of the candle being formed relative to the highs and lows.

Historical extrema are the most likely zone where corrections occur that can be the beginning of a trend reversal. The overbought and oversold zones do not answer the question of whether the pullback will outgrow the opposite trend. Moreover, the indicator gives quite a lot of false signals at the strong directional motion of quotations.

The oscillator will not save from the "knife" of falling prices and make you sell endlessly on a rising trend, that is why you never use just one indicator. In a trading system, it filters entries at the highs, not allowing the trader to enter just before the market correction, so as not to make a loss.

The above described principle of the oscillator formula is a general concept, indicators have been created and improved for half a century, leading to the creation of non-linear principles of market analysis. The most recent achievement is the application of neural networks in the use of the oscillator or the interpretation of its curve signals.

New methods have not led to the emergence of grails, artificial intelligence gives returns comparable with trading robots created 30 years ago. This review article aims to highlight the features of some oscillators. They are capable of scaling the profitability of trading systems when properly combined with a trader's trading style.

Oscillators characteristics
Trading Platform: Any
Currency pairs: Any
Time frame: any
Trading time: 24 hours a day
Recommended brokers: Alpari, RoboForex, Tickmill