Oscillator, Definition
A technical analysis term for a group of countertrend, momentum based indicators that move above and below a horizontal axis that represents neutral market momentum.
Oscillators are often used as short term counter trend reversal indicators - they help to determine when a market is in an overbought or oversold condition. When the oscillator reaches an upper extreme, the market is overbought. When the oscillator line reaches a lower extreme, the market is oversold. Oscillators are useful in a horizontal or sideways market where a clear trend is not evident.
Increasing momentum reflects a powerful price trend, while weakening suggests a possible trend reversal. Momentum Oscillators intend to identify these reversal points - and are used in both long and short term timeframes.
The group of technical indicators known as Oscillators includes: Relative Strength Index (RSI), Stochastics, Aroon Oscillator, Commodity Channel Index (CCI), Moving Average Convergence Divergence (MACD), Rate of Change (ROC)
See also: Introduction to Oscillators