Like mentioned on the previous project here on the Forex Trading Academy, what do you do when markets are not trending? After all, trending happens only 35% of the time, the rest of the time price is spending in consolidation, in ranges, driving everyone crazy. However, ranges can be extremely profitable if one knows how to look for them and how to treat such a range.
Most Popular Oscillators
When the market is not trading and a trader identifies ranges than trading with oscillators is the name of the game. We have been treated here in one of Academy articles, the RSI (the Relative Strength Index) , as the RSI is the world’s famous oscillator. However, any trading platform is offering a lot of oscillators and it depends very much on the tastes of a trader, as well as on the knowledge. Every oscillator is copying the move price makes and if anything it should be more accurate that price itself. Therefore, it is not unusual for traders to look for fake moves price makes by sticking to the oscillator’s move instead of looking at the price.
Trading with Oscillators
Oscillators are preferred by traders as they offer a visible perspective to trading in the sense that divergences can be used when compared with the trend indicators category where divergences are useless. Moreover, oscillators are used for programming automated trading and this makes them the favorite indicators for many traders. Trading with oscillators has advantages and disadvantages and there is no perfect system that works only with one oscillator or a couple or more. The thing is that, they are all showing overbought or oversold levels so by the time one oscillator is in the overbought or oversold territory, we can consider all of them showing the same. In other words, we need something else to filter the signal if you want.
Oscillators Present a Clear Strategy
Trading forex with oscillator has the advantage that the trader knows exactly when to enter the trade, not like trading with trend indicators as in that case one needs to look at things from a relative point of view. With oscillators, for example, I want to buy a call option/place BUY contract on any dip of the relative strength index (RSI) into the 40 level after it reaches the 50. It is a clear strategy and this is possible only when using oscillators. On the Metatrader platform one needs to go on the upper tabs list, choose Insert, then Indicators, and from that list, there is a category called Oscillators.
On the JForex trading platform on the other hand, the oscillators are being called momentum indicators as basically there is a momentum that is building before the oscillators are breaking. If you want, the difference between trend indicators and oscillators is the same like the difference between technical and fundamental analysis. One cannot trade without both categories to be considered. Trading can be done solely on the back of oscillators or indicators, but chances that the option will expire in the money are clearly smaller than taking into account both categories. The same is valid for technical and fundamental analysis: while technical analysis is showing the target, basically where the price should go, fundamental analysis is giving the reason for why the price is moving in that direction.
Reliability of Oscillators
This doesn’t mean that trading is not possible only by using technical or fundamental analysis when making a trading decision, but it shows merely that a combination of the two leads to more success in trading than otherwise. Oscillators are considered to be more reliable than price because they take into account more candles before plotting the level on a chart. For example, the RSI (14) is plotting a value on a chart that takes into account 14 candles prior to the current candle that is opened. This is valuable information sometimes not even the trend indicators are offering.
During the two video recordings that are coming with this article it is presented where the oscillators are to be found and how to use them when trading binary options, so make sure you’re check them to find out more.