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Oscillator

An indicator that moves within a bounded range, designed to show whether price is stretched relative to its recent behaviour.

A stochastic oscillator under a price chartA price line above a lower panel with a fast and a slow curve swinging between a line at 80 and a line at 20, and the point where the fast curve turns up through the slow one circled.PRICESTOCHASTIC (14, 3)80overbought20oversold%K%D%K crosses above %D
The stochastic oscillator. The stochastic shows where each close sits inside the recent high-to-low range, on a scale of 0 to 100. Readings above 80 mean closes are hugging the top of that range and below 20 the bottom; the circle marks the fast line turning up through the slow one.

rsi, stochastic-oscillator, williams-percent-r and commodity-channel-index are all oscillators. They normalise recent price movement onto a fixed scale so that extremes can be compared across time and instruments.

Oscillators work best in trading-range conditions, where fading extremes has some basis, and worst in trends, where they pin at one end and stay there. The most common beginner mistake in all of technical analysis is shorting a strong uptrend because an oscillator reads overbought.

They are also derivatives of price, so they add no information; they reframe it. Two oscillators on the same chart usually agree, which creates a false impression of confirmation. See chart-clutter.

Related: overbought, oversold, momentum-indicator, chart-clutter, trading-range

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