Oscillator
An oscillator is a technical analysis tool used to identify when a security or index is overbought or oversold. Oscillators are used to measure the momentum of a security or index and can be used to identify potential reversal points. Oscillators are typically used in conjunction with other technical analysis tools, such as trend lines, moving averages, and support and resistance levels, to identify potential trading opportunities.
History of Oscillators
The concept of oscillators was first introduced by Charles Dow in the late 19th century. Dow believed that the market moved in cycles and that these cycles could be used to identify potential trading opportunities. He developed a series of oscillators, including the Dow Jones Industrial Average, which is still used today. Since then, many other oscillators have been developed, including the Relative Strength Index (RSI), Stochastic Oscillator, and Moving Average Convergence Divergence (MACD).
Comparison of Oscillators
| Oscillator | Range | Calculation |
|---|---|---|
| Relative Strength Index (RSI) | 0-100 | 100 – (100 / (1 + RS)) |
| Stochastic Oscillator | 0-100 | %K = (Current Close – Lowest Low) / (Highest High – Lowest Low) * 100 |
| Moving Average Convergence Divergence (MACD) | -100 to +100 | MACD Line: (12-day EMA – 26-day EMA) Signal Line: 9-day EMA of MACD Line |
Summary
Oscillators are technical analysis tools used to identify when a security or index is overbought or oversold. Oscillators measure the momentum of a security or index and can be used to identify potential reversal points. Oscillators are typically used in conjunction with other technical analysis tools, such as trend lines, moving averages, and support and resistance levels, to identify potential trading opportunities. For more information about oscillators, visit Investopedia, The Balance, and Investing.com.
See Also
- Relative Strength Index (RSI)
- Stochastic Oscillator
- Moving Average Convergence Divergence (MACD)
- Trend Lines
- Moving Averages
- Support and Resistance Levels
- Technical Analysis
- Chart Patterns
- Volume
- Price Action
