Equtiy Research : Oscillator

Oscillators are indicators that we use when viewing charts that are non-trending. Moving averages and trends are paramount when studying the direction of an issue. A technician will use oscillators when the charts are not showing a definite trend in either direction. Oscillators are thus most beneficial when a company's stock either is in a horizontal or sideways trading pattern, or has not been able to establish a definite trend in a choppy market.

When the stock is in either an overbought or oversold situation, the true value of the oscillator is exposed. With oscillators a chartist can see when the stock is running out of steam on the upside, the point at which the stock moves into an overbought situation. This simply means that the buying volume has been diminishing for a number of trading days; traders will then start to think about selling their shares. Conversely, when an issue has been sold by a greater number of investors for a period of time (from one to two weeks to three to six months or longer), the stock will enter an oversold situation.

In his book entitled "New Concepts in Technical Trading Systems", published in 1978, J. Welles Wilder, Jr., developed the RSI and first shared it with the technical community. This book is a must read for anyone planning to use oscillators to determine buy and sell points.

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As you learn more about oscillators, you will begin to notice that one indicator looks very similar to the others. You will also see that using one indicator in conjunction with another is a very useful tool for determining the important entry/exit points. Not only will you understand how professional traders can be in and out of issues long before the average investor, but you will also be able to find a comfortable trading range, which will unfold in the chart before you.

(Ms. Sushma Gayathri -Equtiy Desk)