26 June 2021

How to use Indicators and Oscillators in Technical Analysis

By DICC Institute

If you are interested in doing some investment in the market and if your kind of serious about the whole concept of investing then you must be undergoing proper research about the market. In such a situation it does not matter if you are a rookie or an experienced trader you will surely go through the graph to recognize what’s going on in the market recently and then calmly decide what to do. In simple word even if you fully aware of the market status and about the process trading can be done still you will be surely conducting an analysis. Which is more likely known as the technical analysis to be exact. There are several tools available that can help anyone to conduct a more efficient technical analysis in which the oscillator is the most important one if seen properly. So, this whole article is going to be all about how a can person use indicators as well as oscillators in technical analysis. So, if you someone looking forward to this very topic then kindly continue to read forward. There is certain question needed to be answered such as.

How do oscillators work?

As mentioned at the starting of this article that oscillators are tools that help one in conducting technical analysis. They have their charts maintained based on the principle of showing your overbought and oversold levels mentioned out separately which is a great thing to look at. The value in which oscillators are expressed is in percentage and their charts mainly contain two separate lines that are maintained to show the threshold of the aforementioned levels. And as the oscillators follow the movement of the market with time these two lines make them quite special and all this is because when the so-called market crosses one of the maintained thresholds then you can likely expect a little shift in the trend which is common at the first point. It is quite a belief that if you can change the overbought and oversold threshold by yourself then these tools can be of much more help to you. However, these are mainly used to make certain predictions that are likely to have more short term in nature. The oscillator in the first case is not a homogenous group but they are plenty to choose from and all this depends on what do are interested in. Now let’s known about the most popular oscillator currently used in the market. These oscillators are commonly found in the indicator tab of the users trading platform UI and there are several presents there. These are mainly according to what you are trading on.

Also Read: Bull Market vs Bear Market and Learning Stock Market for Beginners

Well, it depends on the user to choose the oscillator while a few mostly used ones are: 

Relative Strength Index (RSI):

This is the most popular oscillator on the board which was developed in the late 1970s. It is mostly as discussed above in the article. This compares the bullish and bearish momentum of an asset and then successfully plot the result over to the chart. This is how 70% and 30% threshold are been applied and if you are new to using oscillator then this is one of the best to choose.

Stochastic Oscillator:

This oscillator mainly takes the closing price of the asset and then successfully compares that to a range of listed prices. This is again done to present the user with overbought and oversold areas. However, here the threshold is at a standing position of 80% and 20% respectively. This oscillator is being highly advised to be used.

How does the indicator work?

Technical indicators on the other hand are also highly used in technical analysis. These add value to the chart pattern by confirming the direction of the so-called trend either by the way of the volumes, momentum, overbought/oversold levels, crossovers as well as convergence /divergence. These technical indicators are developed by analyzing past as well as present data such as open, high, low close and volume and are derived into some formulas which are thereafter represented as graphs and that is why are placed above, below or even merged with the price data of a forex pair quite interesting for sure. Now talking about some popular indicator which are:

Also Read: Leading and Lagging Indicators and Best Stock Market Courses for Beginners

Leading indicator:

These indicators indicate the price before it has taken place. These send out the buy signals ahead of the trend which is beginning new and then sell signals when the price look quite overstretched. Some of the popular indicators that falls in this category are:

  1. RSI
  2. Price Oscillator
  3. Ultimate Oscillator
  4. Stochastics
  5. Pivot points

Lagging indicators:

These indicators follow up the price action and then confirms the trend after it has successfully occurred. They are mostly referred to as the indicators

  1. Moving average crossovers
  2. Moving average convergence divergence (MCAD)

Both the above-listed indicators have their own listed advantages as well as disadvantages and thus are under diverse market conditions. 

Conclusion:

I hope the information shared above will be useful to all my readers and join technical analysis course in delhi to know more about indicators and oscillators and how to properly use them in the stock market.

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