Oscillator

An oscillator is a category of technical indicator that fluctuates between two boundaries — typically 0 and 100, or between positive and negative values around a center line. Unlike trend-following indicators that work well in trending markets, oscillators are designed to identify overbought and oversold conditions, making them most useful in ranging markets.

The most popular oscillators are the Relative Strength Index (RSI), which measures the speed and magnitude of recent price changes, the Stochastic Oscillator, which compares the closing price to the range over a period, and the MACD, which technically is a trend-following momentum indicator but oscillates around a zero line.

The classic oscillator strategy is to sell when the indicator enters overbought territory (RSI above 70, for example) and buy when it's oversold (RSI below 30). This works in ranges but fails spectacularly in strong trends, where an oscillator can stay "overbought" for extended periods while price continues climbing. Understanding when to trust oscillators — and when to ignore them — is a key skill.