Oscillators

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Oscillators are designed to indicate a possible change in the trend of a specific trading instrument by showing whether the instrument is either overbought or oversold, therefore allowing traders to determine when a change in the current overall trend will occur and in turn, an entry point into the market.

The RSI indicator is used to determine the state of the market – whether it is overbought, oversold, or stable. If the RSI tops out in the upper zone [overbought (sell signal), > 70] and then returns to the middle zone, the price would move in the same direction.

If the RSI bottoms out in the lower zone [oversold (buy signal), < 30] and then returns to the middle zone, the price would move in the same direction. In other words, the price and the RSI movement correlate.

The Stochastic oscillator is used on the trending markets. If both lines top out in the upper zone [above 80% mark (sell signal)] and then the indicator returns to the middle zone, the rate would move in the same direction. If both lines bottom out in the lower zone [below 20% mark (buy signal)] and then the indicator returns to the middle zone, the rate would move in the same direction.