Oscillators will help you identify better signals on when is the right time to enter the market. Here are our recommendations of the best trading oscillators.

When you know what indicator is best to analyze trending markets or which one is to identify opportunities, you will instantly be a master in trading. The best trading oscillators are needed to help you evaluate a currency pair or other assets you currently trade, so you will notice when an asset will gain or lose momentum.

Here are several trading oscillators that are recommended for you to catch momentum:

  1. Stochastics: a momentum indicator with %K and %D crossing to identify trend changes.
  2. RSI: a bit similar to Stochastics, only it consists of a single moving line and utilizes the median level (50).
  3. CCI: RSI with tighter ranges.
  4. MACD: shows best momentums with Moving Average Crossovers using Histogram.
  5. AO (Awesome Oscillator): MACD without the moving line.

If you are still wondering on how to read market signals from each oscillator above, take a look at the explanation below.

 

1. Stochastics

The Stochastics indicator is quite well known because it allows traders to confirm price action signals.

The reason is because this indicator calculates an asset's closing price and the price during a specific time but often near the high/low during a trend, depending on the occurring trend.

Best trading osicllators - Stochastic

Stochastics indicatively predict the calculation of whether an asset price has been trending, losing momentum, or just barely trading. Hence, if you are an experienced trader, you will easily read the movement within the chart.

However, if you are new to trading, this will take a moment to understand because it requires technical analysis.

If you wish to use the Stochastics indicator, try to look for the long entries right after a bearish crossing in the oversold area (usually below 20).

As for short entries, the common concept is to use a bearish crossing between %K and %D in the overbought zone (usually above 80).

 

2. Relative Strength Index (RSI)

The second-best trading oscillator that is quite similar to Stochastics is the Relative Strength Index (RSI).

Even though both indicators are good if you are pursuing momentum oscillators, RSI performs better on trending markets when the signals show above 50 on the uptrend.

Best trading osicllators - RSI

To get you an excellent chance by using RSI, try to find potential levels then proceed to enter a market.

Note that at some time it might be better to draw two additional lines at 40 and 60 at your screen instead of at 50 because overbought and oversold are often at 70 during an uptrend and 30 on a downtrend.

 

3. Commodity Channel Index (CCI)

Compared to the two previous best trading oscillators, the CCI does not range between 0 to 100.

The formula that CCI uses to analyze a market is utterly unlike RSI and Stochastics. The easiest way to utilize CCI is to use technical analysis like trendline breakouts and merge it with the price action.

Best trading osicllators - Commodity Channel Index

Furthermore, you can add multiple time frame analysis that will make you gain early opportunities.

Also, keep in mind that when the signals remain at the normal range, it is a sign that there will be no strong movement in the market, and the asset price is likely not going anywhere.

 

4. Moving Average Convergence Divergence (MACD)

If the previous three indicators rely on your ability to read the chart, MACD is unmistakably the opposite of it.

You have to be able to combine two Moving Average Crossovers using Histogram to gain the best momentum.

Best trading osicllators - MACD

Nevertheless, to find convergence and divergence easily, you simply need to compare the highs and lows in MACD to price action with the highs and lows before the recent ones.

By comparing them, you will find a market opportunity, especially when the sell signal in the MACD is trading above 0 and vice versa.

 

5. Awesome Oscillator (AO)

Last but not least, Awesome Oscillator is a bit similar to MACD because they both use Histograms.

So, when the Histogram reaches 0 and continues to go up, that means the bulls are gaining momentum. But when the Histogram is below 0 and continues to move lower, that means the bears are taking over the market.

Keep in mind that this is not always the case as it's still possible to get false signals from Awesome Oscillators.

Best trading osicllators - Awesome Oscillator

If you wish to use AO for your trades, try to operate it using the comparison between the two tops of the price and the oscillator.

It will show you divergence signals to spot entry opportunities when the price is about to reverse. To confirm the signals, wait until AO's Histogram moves above or below 0.

For instance, following a bearish divergence where the price's double top shows higher highs while the oscillator's forms lower highs, wait until the Histogram moves below 0 to place a sell order.

 

One of the best trading oscillators mentioned above, the MACD, is actually a multi-purpose indicator with a variety of benefits for technical analysis. To learn about it further, read How to Use MACD Effectively.