Oscillators work under the premise that as momentum begins to slow, fewer active buyers and sellers are willing to trade at the current price.
A change in momentum is often a signal that the current market trend is weakening. For this reason, traders need tools that can measure market momentum. A Momentum Oscillator can help you distinguish between reversals and fluctuations. Oscillators work under the premise that as momentum begins to slow, fewer active buyers and sellers are willing to trade at the current price.
RISING BULL MARKET
In a rising bull market, slowing momentum could indicate that an upper resistance level has been reached, and after peaking, the price may be about to reverse.
FALLING BEAR MARKET
In a falling bear market, slowing momentum could suggest that the price is near a support level and traders are looking to buy at a bargain, which could reverse the bear trend.
Because forex is an over-the-counter (OTC) market, it can be difficult to see an aggregated view of total orders and positions, momentum oscillators provide additional insight into market sentiment. Additionally, the OANDA Order Book Indicator gives traders a view of open orders and positions held by OANDA's clients during the last 24-hours.
The Stochastic Oscillator uses a scale to measure the degree of change between prices from one closing period to the next, and attempts to predict the probability that the current directional trend will continue. It is used by analysts to provide some insight into potential future market direction.
The Stochastic Oscillator is based on the premise that during a market uptrend, prices will remain equal to or above the previous period closing price. And alternatively, in a market downtrend, prices will likely remain equal to or below the previous closing price.
The MACD Oscillator uses moving averages to look for trade signals generated when moving averages either converge or diverge from each other. To see this effect, at least one slow moving average and one faster moving average must be charted.
When the short-term moving average moves upward and crosses over the longer-term average, it signals that the rate is trending upwards.
Conversely, when the short-term moving average falls below the longer-term average, it is an indication that the rate is trending downward.
In either case, the greater the deviation, the stronger the trend. This EUR/USD example shows a MACD chart with two average price trend lines. One line shows the average rates for the past three hours (longer term), and the other line shows the average for the past ten minutes (short term).
The Awesome Oscillator is a histogram showing the market momentum of a recent number of periods compared to the momentum of a larger number of previous periods. This indicator attempts to show what is happening to the market for the current period compared to the momentum of a longer period. Some traders use this signal for buy and sell decisions.
The Awesome Oscillator (AO) defaults to show a 34-period simple moving average subtracted from a 5-period simple moving average. These lengths can be customized by traders on the OANDA platform.
THE ULTIMATE OSCILLATOR
The Ultimate Oscillator, developed by Larry Williams, uses weighted sums of 3 oscillators (typically 7, 14 and 28 period time frames) to smooth out the variations that occur in indicators that only use one time period. The oscillator is plotted as a single line from 0 to 100.
A sell signal appears when there is a bearish divergence (the price reaches a higher high, but the ultimate oscillator does not), OR the ultimate oscillator rises above 50 and then falls below the lowest point reached during the bearish divergence
A buy signal appears when there is a bullish divergence (the price reaches a lower low, but the ultimate oscillator does not), OR the ultimate oscillator falls below 30 (oversold territory) and then rises above the highest point reached during the bullish divergence.
A long position should be closed when a sell signal (described above) occurs, OR the ultimate oscillator rises above 50 and then falls below 45, or it rises above 70.
A short position should be closed when a buy signal (described above) occurs, OR the ultimate oscillator rises above 65, or falls below 30.
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A trading strategy can offer benefits such as consistency of positive outcomes, and error minimization. An optimal trading strategy reflects the trader’s objective and personal approach.
Fundamental traders watch interest rates, employment reports, and other economic indicators trying to forecast market trends.
Technical analysts track historical prices, and traded volumes in an attempt to identify market trends. They rely on graphs and charts to plot this information and identify repeating patterns as a means to signal future buy and sell opportunities.
Leveraged trading involves high risk since losses can exceed the original investment. A capital management plan is vital to the success and survival of traders with all levels of experience.
Learn risk management concepts to preserve your capital and minimize your risk exposure. Seek to understand how leveraged trading can generate larger profits or larger losses and how multiple open trades can increase your risk of an automatic margin closeout.
Execution speed numbers are based on the median round trip latency measurements from receipt to response for all Market Order Fills executed between June 1st and Sept 1st 2016 on the OANDA legacy and OANDA v20 execution platforms, excepting MT4 initiated orders.
Contracts for Difference (CFDs) or Precious Metals are NOT available to residents of the United States.
MT4 hedging capabilities are NOT available to residents of the United States.
The Commodity Futures Trading Commission (CFTC) limits leverage available to retail forex traders in the United States to 50:1 on major currency pairs and 20:1 for all others. OANDA Asia Pacific offers maximum leverage of 50:1 on FX products and limits to leverage offered on CFDs apply. Maximum leverage for OANDA Canada clients is determined by IIROC and is subject to change. For more information refer to our regulatory and financial compliance section.
This is for general information purposes only - Examples shown are for illustrative purposes and may not reflect current prices from OANDA. It is not investment advice or an inducement to trade. Past history is not an indication of future performance.
Trading FX and/or CFDs on margin is high risk and not suitable for everyone. Losses can exceed investment.