The technical analysis instruments called trend indicators and oscillators are a result of mathematical treatment of time-averaged prices.
Oscillators (Lat. oscillo – I swing) are a group of technical analysis indicators that characterize the market overbought or oversold conditions.
These indicators are efficient in a side trend when prices move within the bounds of a relatively narrow market corridor.
RSI (Relative Strength Index) correlates the relative strength of directional price movements within a certain timeframe.
RSI is mostly used as an indicator of an overbought/oversold market, and as an instrument of detecting divergence/convergence.
Divergence/convergence at which the price reaches a new high (low), but the RSI does not overcome the previous high (low), shows possible price trend reversal. If RSI then turns down (up) and falls lower (rises higher) its previous low (high), then it finishes the so-called “failure swing”. This signal is a confirmation of an approaching trend reversal.
When RSI approaches the upper boundary of its range (for example rises above 70) or the lower boundary (for example falls below 30), either a reversal or a temporary consolidation is possible in the market.
Stochastic oscillator describes the position of the current price of a financial instrument with regards to the price range in a certain time period.
The application of stochastic oscillator is similar to the application of RSI.
If oversold (below 20), especially with convergence, the faster line %К crosses the slower %D from the bottom upwards, this is a signal to buy.
If overbought (above 80), especially with divergence, the faster line %К crosses the slower %D from the top downwards, this is a signal to sell.
Moving Average (MA) is a simple and reliable indicator, helping to define short-, mid- and long-term trends.
Moving average belongs to the trend indicators class which helps to define the start of a new trend and its end. The power (velocity) can be estimated by the angle of the line slope; МА is used in many other technical indicators as a basis or a smoothing factor.
There are several types of МА such as Simple, Exponential, Smoothed, Linear Weighted.