Trading with Oscillators: The Basics

If trend indicators are the favorite trading instruments for swing traders and investors, oscillators are for scalpers. As a definition, scalping means traders open positions having in mind a very short time horizon.

When picking the right oscillator, traders should focus on the ones that do not repaint. This means that by the time a value is plotted on the window below the actual price, it will never change no matter what the future price action will be.

Scalping using oscillator

Besides the RSI, CCI and the MACD, here are other famous oscillators and how trading cfds, stocks or any other markets can be done:

1. Stochastics

This one is favored by traders for a simple reason: it shows two lines (the fast stochastics and the slow one) that intersect. The moment this is happening, it is a bullish or a bearish sign. Moreover, this oscillator travels between overbought and oversold levels too, exactly like the RSI does, only that these levels are different. Overbought is the 80 and oversold is the 20 level.

When the cross between the two lines is forming in the overbought or oversold territory, the signal is even stronger. This oscillator cannot have negative values, no matter how strong the bearish trend is.

Another way to trade with the Stochastics oscillator is to simply look for divergences with at least one part of the divergence to be in either overbought or oversold territory.

2. Momentum

This is one of the most powerful oscillators of them all. There are various ways to trade with the Momentum indicator, but before going into more details, it is important to understand what it is and how it travels.

First of all, it is an oscillator and, like any oscillator, the bigger the period it considers, the flatter the resulting line will be. Therefore, it is not wise to have a bigger period for it, or for any other oscillator as a matter of fact.

The Momentum oscillator travels around the 100 level. Above it, it shows bullish conditions and a bullish trend. Below it, it shows a bearish market that trends towards lower levels. Only in strong trends, this oscillator travels beyond 120 or higher levels, or below 80 or lower levels.

The reason why it is so powerful is coming from the fact that it shows the strength of a trend. Powerful movements see the momentum traveling aggressively and this means the trend is strong. Look for any pullbacks the oscillator makes into the 100 level to be aggressively bought. It should be mentioned here that the 100 level is not an implicit one.

Any other oscillators?

Besides the two indicators mentioned here, other oscillators are traded in a similar way. The most representative ones are Average True Range, DeMarker, Moving Average of Oscillators, and so on. Relative Vigor Index is similar to the Stochastics oscillator, so it is traded in the same way.

The ZigZag indicator is an interesting one to be mentioned here. It is offered on the oscillators category on any MetaTrader platform but it is one that re-paints. It means that the values or the lines plotted on the screen (not on the actual candles) will disappear if the market makes a new low or high.

Oscillators’ adoption

The oscillator is the base for algorithmic trading or trading with robots. Retail traders build expert advisors based on oscillator levels and they let the robots open and close the trades automatically. This is not possible to be done with trend indicators. Again, divergences are the ones that are used for automatic trading most of the times.

Other indicators can be offered on different trading platforms. Cycle indicators, volume ones, or custom made ones that can be imported on the trading platform. Nevertheless, they show the same thing: overbought and oversold levels and divergences between the price and the oscillator.


If you enjoy daytrading in a short time horizon, you need to use oscillators. Choose the oscillator that you’re interested in and learn how to make usethe tool for reading the charts – and make a well-informed trading decisions.