Let’s look at how to use oscillators to warn you of the end of a trend.
An oscillator is any object or data that moves back and forth between two points.
It’s an item that is going to always fall somewhere between point A and point B.
Think of when you hit the oscillating switch on your electric fan.
Think of our technical indicators as either being “on” or “off”.
An oscillator will usually signal “buy” or “sell” with the only exception being instances when the oscillator is not clear at either end of the buy/sell range.
Does this sound familiar? It should!
The Williams %R, Stochastic, and Relative Strength Index (RSI) are all oscillators.
Oscillators work under the premise that as momentum begins to slow, fewer buyers (if in an uptrend) or fewer sellers (if in a downtrend) are willing to trade at the current price.
A change in momentum is often a signal that the current trend is weakening.