December 22, 2021

Using Oscillators for Forex Trading in Greece

For forex traders in Greece, oscillators can be a powerful tool for forecasting market trends and determining trade entries and exits. Oscillators are mathematical indicators that help measure the momentum of a given security or market. When used correctly, they can provide insight into when prices are likely to continue moving in a specific direction or when they may be due for a reversal.

Oscillator tool

Many different tools can be used for forex trading. One of those is the oscillator, which analyses the momentum of a currency pair’s price and gives traders an idea of where it is heading next. Oscillators often go hand in hand with other technical analysis indicators like Fibonacci retracement or moving averages. These indicators help to smooth out some of the noise associated with reading charts and give clear buy and sell signals. Before we look at some valuable oscillators, let’s first learn what this indicator does and how it works.

How do oscillators work?

Oscillators measure the momentum of a currency pair’s price movement by finding the difference between two extremes on either side of a centerline (the zero line). These two extremes are the fast and slow lines, also known as the faster-moving average convergence-divergence (MACD) indicator. The centerline is considered zero because it represents the midpoint between all highs and lows.

When can oscillators be based?

Oscillators can be based on any time frame, but traders usually use them for extended periods, such as daily or weekly charts. The one drawback with oscillators is that they require explicit price action to work correctly; otherwise, they will not give accurate readings. It means it is best to wait until a currency pair forms at least an intermediate reversal pattern before using an oscillator.

Let’s look at what some of these patterns may be like on a chart:

Double bottom

This is a pattern that forms when a currency pair’s price falls to a new low, only to rebound and form a higher low. Once this occurs, the price usually starts to rise again. It can be seen on the chart below as the EUR/USD slowly formed a double bottom starting in late November 2014.

After bouncing off the support at 1.2100, the EUR/USD began to rally and broke above the resistance at 1.2500 in early January 2015. The oscillator would have likely given a buy signal at this point as it would have shown an increase in momentum.

Head and shoulders

Another reversal pattern used with oscillators is called the head and shoulders. It’s a three-pivot top pattern that forms at the end of a prolonged downtrend. It looks like a person’s profile with a head and two shoulders.

The downside momentum would be measured by using the difference between the fast line and the slow line on an oscillator, while the upside momentum would be determined by measuring those same values from right to left. A buy signal would occur when their sum crosses above zero, which can be seen in early February 2015.

Once this occurs, traders may see price rise again because it shows that bears have weakened their grip on market sentiment. This type of action can be confirmed with other technical indicators such as stochastics or moving averages, which we mentioned earlier. Many different oscillators can be used for forex trading, and each one has its own unique set of signals. However, all oscillators do the same thing by measuring the momentum of price action. By using an oscillator in conjunction with other technical indicators, traders can get a clearer picture of where a currency pair may be heading next. It is always best to demo trade these patterns before risking any real money in the market.