Price Oscillator Overbought & Oversold
Price Oscillator
- Price Oscillator Defined
- Price Oscillator as an Overbought & Oversold Indicator
The Price Oscillator can be used to detect when a trend is slowing down and potentially could reverse. This occurs when the Price Oscillator moves back towards the zero line. In contrast, when the Price Oscillator is moving away from the zero line, the price trend is accelerating.
Moreover, the Price Oscillator can reveal areas of overbought and oversold, which is shown below in the chart of the E-mini Russel 2000 Futures contract:
In oversold areas, where the Price Oscillator is bottoming, a trader could look for buys. Of course other technical indicators should be used to initiate the trade.
Similarly, in overbought areas, where the Price Oscillator has topped, a trader could look for sells. Other technical indicators should be consulted before an official decision is made, but nevertheless, the Price Oscillator gives a bias as to whether buy or sell indications should be acted upon: overbought regions - look for sells; oversold regions - look for buys.
The Price Oscillator is effective in visually representing overbought and oversold conditions as well as showing moving average crossover buy and sell signals. The Price Oscillator is very similar to the MACD line of the very popular MACD indicator and should be investigated as well (see: MACD).