What Is an Oscillator?
An oscillator is anything that moves back and forth between two points — kind of like a pendulum or, more relatable, your electric fan when you hit that oscillate button.
In trading, an oscillator is a technical indicator that fluctuates within a set range — typically between two values — and signals whether an asset might be overbought or oversold.
Think of it this way:
Technical indicators can be “on” or “off” — and oscillators usually give clear buy or sell signals. Sometimes, though, they hang out in a neutral zone when the signal isn’t strong enough in either direction.
Sound familiar? It should!
Indicators like Williams %R, Stochastic, and Relative Strength Index (RSI) are all examples of oscillators.
How Do Oscillators Work?
Oscillators are based on the idea that momentum slows down before price reversals. For example:
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In an uptrend, as momentum weakens, fewer buyers are willing to jump in at the current price.
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In a downtrend, the same applies to sellers.
This shift in momentum can be an early clue that the current trend is running out of steam — and that a reversal may be just around the corner.
These tools are specifically designed to spot potential reversals by detecting when prices may be stretched too far in one direction.
Let’s See Them in Action
Check out the daily chart of GBP/USD below. We’ve added the Stochastic, Parabolic SAR, and RSI indicators.
Remember how we discussed these tools back in Grade 5? No? Uh-oh… you might be getting a one-way ticket back to class!
Anyway, as you can see:
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Around late December, all three indicators gave a buy signal — and had you taken the trade, you could’ve banked around 400 pips. 💰
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Then in mid-January, all three flipped and gave sell signals. Following those could’ve landed you even more pips from the next big drop.
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Come mid-April, another round of sell signals showed up — and sure enough, price plunged again.
Nice and clean, right?
But Not So Fast…
Let’s not pretend these indicators are perfect. Here’s another chart where they gave conflicting signals and tripped over each other.
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In mid-February, Parabolic SAR gave a sell signal…
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But Stochastic flashed buy…
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And RSI? It didn’t say anything useful — just sat there looking undecided.
Mixed signals like this make it hard to know who to trust.
Later in April, both Stochastic and RSI gave sell signals, but Parabolic SAR said nothing — and price kept rising.
If you’d shorted based on those signals, you might’ve taken a loss.
Same thing happened in mid-May: Stochastic and RSI said “buy,” but SAR said “sell.” If you ignored SAR and went long, you would’ve been hit again.
Why the Inconsistencies?
The issue lies in how these indicators calculate their values:
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Stochastic looks at the price range over a period, but not how prices change between candles.
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RSI compares current closing prices to previous ones.
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Parabolic SAR uses a completely different formula based on time and price.
So yeah — they don’t always agree.
That’s just how oscillators are. They assume that a certain price behavior will always lead to the same outcome — and, of course, that’s nonsense.
What Should You Do with Conflicting Signals?
The truth is: no matter how good the indicators are, they’ll never be right all the time.
So if you’re seeing mixed signals and aren’t sure what to do — do nothing.
Don’t force a trade just because you want there to be one.
If a chart doesn’t meet all your criteria, move on and find one that does.