Mastering Oscillator Signals and Volume Confirmation
Primary Uses of Trading Oscillators
Oscillators offer three primary functions for traders: (i) identifying overbought/oversold conditions; (ii) spotting divergences; and (iii) identifying crosses.
Overbought and Oversold Zones
- Overbought Zone: Defined as being above 0.01. Traders should look to sell at points that cross the horizontal line when a downward trend is indicated.
- Oversold Zone: Defined as being below -0.01. Traders should look to buy at points that cross the horizontal line when an upward trend is indicated.
- Zero Crosses: Additionally, sell during a downward trend when the indicator crosses the 0 line.
Identifying Bearish and Bullish Divergences
- Bearish Divergence: Occurs when the price reaches a new high, but the indicator makes a lower