Understanding Oscillators And Momentum Indicators

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If you want your trading account to show positive growth, you’ll surely need some help. No, we are not talking about experts. Do you see the lines running throughout the stock chart? All these lines are commonly known as technical indicators. According to some traders, these lines are useless and meaningless in trading.  

If you ask us, trading rule 101 says don’t neglect those lines. These indicators were introduced in the realm of trading by successful traders. These trading lines can be a bit confusing, especially for new traders. This is probably because you don’t know them well or you haven’t worked with them.

In this article, we are going to dig deeper into oscillators and momentum indicators. You will also be able to explore leading and lagging indicators and how they can be useful while trading. Before you jump to oscillating and momentum indicators, let’s learn more about technical indicators. 

Defining Technical Indicators 

Technical indicators are pattern-based signs that serve as analyzing tools. Traders can use these indicators to have a clear understanding of the price movement. There is a multitude of technical indicators that can assess market trends, produce average prices, and measure factors such as volatility. In more specific terms, the technical indicators are derived after a formula is applied to the price data of an asset. 

A few indicators use formulas consisting of open interest and volumes while the others incorporate the closing price of the security. The whole idea of technical indicators revolves around price data. But why do technical indicators use graphical representation? It is because it’s easier to draw a comparison between the current and past data. 

This will help you to form a clear outline of the asset’s performance over time. You can easily refer to the ongoing price trend of an asset. A few charts also plot the technical indicators on the top of the price chart for a better comparison. You should know that a single data point is incapable of offering precision or usefulness.  

The technical indicators are capable of providing a unique and fresh perspective on the direction and strength of the asset. You can easily spot price trends by referring to a 10-day long price chart. If you are waiting for the perfect moment for placing your order, it’s best to have a look at the indicators. 

Why Should You Use Indicators? 

The main technical indicators are to authenticate, alert, and to anticipate. These are the main features and uses of technical indicators. 

  • You can use a technical indicator to authenticate or confirm several other analyzing tools. In case you notice a breakout in the charts, the corresponding moving average crossover acts as an indicator that confirms the breakout. The on-balance-volume(OBV) is used during weakness in the market. 
  • These indicators serve as an alerting system as well. Utilize these indicators to gain perspective on the price action. If the momentum is decreasing, be ready for a break of support. On the other hand, if the chart seems to be positively diverging, brace yourself for a resistance break. 
  • A few professional traders also believe that these indicators can do a lot more. They are a good way to anticipate the future course in the charts. While this is very convenient, we don’t know if the actualization is helpful or not. 

Using The Indicators 

The first and foremost goal of indicators is to indicate. Traders should not solely depend on the indicator. Don’t forget to consider the price points of an asset before opening an order. These indicators are a result of price points applied in a formula. Therefore, they are not derivatives or perfect reflectors of the ongoing price points. 

If you want to use these indicators correctly, don’t leave the price action behind. Check the current direction of the price. These indicators will showcase obvious buying and selling signals, you should consider these signals along with other technical tools to get appropriate readings. 

There are situations where the indicators maybe are implying a buying signal, but the charts speak of a declining trend, then in all probabilities, it can be a false signal. There several parameters of using technical indicators. The more you learn about them, the better you will be able to use them. 

Technical analysis may sound scientific and theoretical, but it’s a form of art. Since there is a range of indicators in the market, and more and more adding every week, therefore picking one of them is perplexing. The newborn traders should lay their hands on old indicators as they are more reliable and tested. 

Finding a useful indicator is like looking for a needle in a haystack. We suggest that you shouldn’t overload your hands with too many indicators at a time. Pick 2-3 indicators that complement one another, and you’re good to go. 

Leading Vs. Lagging Indicators 

Before we jump to any conclusions, you need to remember that the market is very dynamic and ever-changing. You cannot use leading or lagging strategies single-handedly to generate successful trades. Traders often find themselves in crosshairs when it comes to choosing one of these indicators. Even the most experienced traders find it challenging to strike a balance between the two. 

When you rely only upon leading indicators, you should prepare yourself to spot out the fake signals. The signals you receive with the lagging indicators may not be true to its nature. Considering all the drawbacks, the traders should devise a strategy that is applying both the indicators. You cannot perform trades without leaving one of these. 

You will be able to perform much better traders if you understand the fact that there is nothing such as a perfect indicator. Indicators are designed to discover the likelihood and not predict the outcome. 

Leading Indicators 

The market consists of perpetually two kinds of indicators, namely leading and lagging indicators. The leading indicators are carefully designed to forecast the future course of the stock market. This allows the traders to analyze the movements and shifts in the market before time. You will be able to receive early entering and exiting signals from these indicators. 

You can take advantage of the entire trend when the leading indicator gives a genuine signal. The leading indicators are not always a sure shot. The professional traders always combine the leading indicators with another set of analytical tools to scrounge through the market movement.

Types Of Leading Indicators 

As we discussed before, various indicators are popping up in the market every day, but we have to sort out the best. There are a few indicators that provide more consistent and reliable data than others. Have a look at the best performing leading indicators in the market. 

  • William % R
  • Stochastic Oscillator
  • Volume
  • Commodity Channel Index (CCI)
  • Relative Strength Index 

Momentum Oscillators 

You need to have a clear overview of momentum oscillators because many leading indicators are available in the form of momentum oscillators. Momentum oscillators define the speed of change of the price of a security. You will see a directly proportional relationship between the momentum oscillator and the price of the assets. The slower the security rises, the smaller will be the decrease in momentum. 

If the price starts pacing up, the momentum will also rise in the same way. When the security lays flat, then the momentum will start declining too. Don’t think a declining momentum is equal to a bearish signal all the time. It depicts that the momentum is trying to regain its position in the median or normal level.

Pros And Cons Of Leading Indicators 

The traders should be aware of the upsides and downsides of the analytical tools they are using for their strategies. There are plenty of benefits and disadvantages to leading indicators. 


  • It can forecast early entering and exiting signals for you.
  • They generate greater signals and provide trading opportunities. 
  • You can determine the strength or weakness of the current situation. 
  • The leading indicators can be used in the trading market.
  • The indicators are ideal for trending markets
  • It helps to identify overbought scenarios for selling 


  • The early signals expose you to a great amount of risk.
  • There is a high possibility of generating fake signals. 
  • These signals react to the market prices quickly 


Lagging Indicators 

The lagging indicators work very differently than the leading indicators. This indicator follows a particular event or a trend to make an analysis. The working of these indicators is based upon the movement of price. Rather than forecasting the fluctuations in price, these indicators indicate whether the price will go up or down. You can invest in your securities accordingly. 

Keep in mind that the lagging indicators are very slow and delayed. Since the lagging indicators provide validated results, most traders choose them as it boosts their confidence. A successful trading strategy involves at least 2-3 lagging indicators. These trend-tracking indicators are more accurate when the market is developing a strong trend. 

The lagging indicators are not suitable for trading or sideways markets. When the lagging indicators are used in trading, then they generate whipsaws and fake signals. The world of technical analysis and trading at its core is about trying to forecast the price action in the market. 

Types Of Lagging Indicators 

Lagging indicators are of many varieties. Though we have curated a list of the most suitable lagging indicators, it is up to you to pick the one that perfectly fits. Read on to know the most successful lagging indicators in the market. 

  • Relative strength index (RSI)
  • Simple moving averages (SMA)
  • Moving average convergence divergence (MACD)
  • Stochastic Oscillator 

Pros And Cons Of Lagging Indicators

There are several reasons you should use lagging indicators for your strategy. Though these indicators are great, they come with a few loopholes as well. You can learn all the pros and cons and then decide if the lagging indicators should be used or not. 


  •  The lagging indicator confirms the recent price trend.
  • It has the potential to reduce the risk of false breakouts. 
  • Trend-based indicators are easier to use.


  • It is unsuitable to use when securities divert towards trading
  • They have a slow pace of providing feedback
  • It is difficult to enter or exit the market.
  • The predicted price action is not a sure thing. 
  • Traders may have to give away potential pips 

How Do Leading And Lagging Indicators Differ? 

To understand the algorithm of each indicator and draw out a winner, we first have to understand how they differ. Understand these points of parity clearly to make a fair analysis. 

The Timeline 

The leading indicators work on a much shorter timeline. The price points collected are recent. They utilized the data from the recent past and then led the price action. The lagging indicators work only after the reversals or trends. The traders can use lagging indications to spot a trend.

The Signals 

The signals are where both indicators take a different direction. The leading indicators generate signals when the trend is all set to begin. The lagging indicators follow the price movements for giving the signals. 

Challenges Of Using Indicators 

The technical indicators are all about consistency and sensitivity. In the perfect trading world, traders want a tool that is sensitive to price movements. It should be able to give price and early signals and have very few whipsaws. Increasing the sensitivity of the indicator will result in fewer false signals, but this will increase the lag in them.

When the moving average is decreased, the indicators become more volatile and speedier. This is how most of the momentum indicators work in the trading markets. The investor or traders should select the timeframe with utmost precaution and keep his trading goals and style in mind. We suggest that you break redundancy while choosing your indicators every time. 

You need to have an in-depth knowledge of indicators because they are versatile. The same set of indicators cannot be applied to all charts. You will be making a grave mistake by using several indicators at a time. Similarly, fewer indicators can also lead to unpredictable outcomes.  

How To Use Oscillators To Warn You Of The End Of A Trend 

We will be discussing various types of oscillators and how to use them to get perfect signals. The oscillation will seem to be challenging at first, but as you go on working with them, you will get used to it. The prime goal of oscillators is to project buying or selling signals.  

When the momentum initiates sluggishly, then there are very few sellers or very few buyers that are willing to trade at the ongoing price. You may witness an uptrend and downtrend accordingly. A fluctuation in momentum is a sign that the trend is turning weak. 

The oscillator indicator is designed to identify trend reversal as well. The trend reversal is a situation where the previous trend has come back into action, and the price has taken another direction. The oscillator will always move back and forth from point X to point Y. The oscillator indicator is considering the momentum and price to give signals. 

The oscillator indicator starts providing signals even before the trend takes its shape. Because of early signs, a trader can maximize his or her profits. The oscillators will signal you also when you’re trading against the trend, but let’s keep that talk for some other day. 

When the oscillator is weakening, it implies that the trend is coming to an end. If you want to make good use of oscillators, try and combine a variety of oscillators. The oscillator does not always provide genuine signals. It can mess up your analysis.

You can use the stochastic oscillator to point out trend reversals. It will ultimately warn you when the trend is fading or diluting. While you are using oscillators, look for securities that display a bullish trend in the market.

If you see that the momentum is taking a u-turn and is coming back to the midline, it means that the trend is diminishing. It also suggests that all profitable opportunities have windswept. Take this signal as an alarm and exit the market. The quicker you leave the market right now, the less loss you’ll face. 

Look for breakout signals provided by the oscillators. This indicator is one of the essentials all traders must understand and use throughout their trading profile. The best way to check the end of a trend is to use the momentum oscillator indicator. 

All About Oscillators 

The oscillator is a useful analytical tool that moves around the top and bottom of the centreline as its data fluctuates over time. Oscillators can enter overbought or oversold situations for a long period. The trends and moving averages are imperative when analyzing the direction of an asset. A trader will use this tool when the charts are not able to show any trend. 

Use the oscillator indicators when the stock is going sideways or horizontal. This tool will come in very handy when dealing with overbought or oversold situations. Oscillators are very confusing chapters of trading markets that you need to overcome before you hit the charts. 

The centered oscillator is helpful when you want to understand the strength or weakness of the market. Most readings that go above the middle line represent a bullish situation. The readings that are below the center are bearish situations. The centered oscillators are not capable enough to identify extreme situations. The banded oscillators are perfect for spotting overselling and overbuying in the market. 

Types Of Oscillators 

You can find an array of indicators in this category. We will discuss all the types of oscillators in-depth to give you a clear overview of it. The two broad categories under oscillators are centered oscillators and banded oscillators. 

Traders who wish to analyze the direction or the price action should consider used centered oscillators. The banded oscillators are useful in identifying overselling and overbuying levels. After the end of this portion, you will not only understand the two types but also compare them closely.  

Centered Oscillators 

The centered oscillators can be spotted moving above or beneath the central line. The oscillators are specially designed to identify the strong and weak points, or momentum, or the direction of a stock. The momentum portrays a bullish behavior when this oscillator is moving above the middle line. If the oscillator is moving below the centerline, then the momentum will be bearish. 

The MACD is one such tool within the centered oscillator that moves on top and beneath zero. The difference between a 12-day long EMA and a 26-day long EMA of an asset can be termed as MACD. There are various Centered Oscillators like Momentum Indicator (MOM), Moving Average Convergence/Divergence, and ROC. The traders usually apply these indicators with other types to gauge the best signals. 


MACD is one of the most popular analytical indicators used by traders. It has been in the market for quite a while. This unique indicator has lagging properties and leading properties both. This feature makes the MACD more suitable for trading markets. MACD considers the gap between the moving averages to display the speed or momentum. 

When MACD is weighing the rate-of-change, it becomes a leading tool. Note that the indicator may lag even after measuring the momentum. MACD has created a user base for itself by acting both as a leading and lagging indicator. It combines the rate-of-change and the moving averages to provide analytical data for the traders. 

You can identify the overall trend of security with this indicator. The employment of both moving average and the change between them ensures that the traders have the best data in hand. The MACD line is calculated by measuring the rate of change between the 12-day EMA and the 26-day EMA. The signal line is generated by measuring the 9-day EMA of the MACD line. The MACD histogram is derived after studying the difference between the MACD line and the signal line.


The ROC stands for Rate-Of-Change. The ROC is a type of centered oscillator that works similarly to the MACD. This indicator is a helpful tool that is used to measure the change in price over a while. The data collected through ROC is expressed in terms of percentage. For example, a 16-day long rate-of-change would analyze the price change over the last 16 days. 

If the difference between the ongoing price and the price 16 days ago is large, then the ROC will also have a higher value. When the ROC is above the line, the price fluctuation is bullish. If the ROC is under the line, then it is a bearish situation. 

Unlike the MACD, the ROC is not tied by the top or bottom limits. Due to this, spotting an oversold or overbought situation is difficult. When we are dealing with price levels, the banded oscillators provided a much better perspective. 

Banded Oscillators

The banded oscillators are used to gauge the ultimate price levels. It runs above and beneath the two lines that depict the price levels. The lower line stands for oversold situations, and the other line is for overbought situations. The bands work according to the oscillator and show minute changes from stock to stock.

Banded oscillators are perfect for securities or trading ranges that are not trending. When the market is following a strong trend, the signals offered by banded oscillators are not validated. The trend is dangerous to be used with banded oscillators. When you are using banded oscillators, the first thing to do is to check both the bands and their extremities. 

The two best-banded oscillators are the Stochastic Oscillator and Relative Strength Index (RSI). Before we move ahead to discuss the two, you must know that both these oscillators are more complicated than the MACD and ROC. The rationale and formulas are not easy to understand. 


Like we mentioned before, you should identify the bands before trading. The bands for RSI for overbought conditions are set to 70 whereas, for the oversold conditions, it is 30. If the charts display a reading above 70, then it is an overbought situation. If the charts are running under 30, then it’s a situation of overselling.

As for a Stochastic oscillator, numbers greater than 80 suggest overbuying, while a chart under 20 depicts overselling. These band settings are not a hard-and-fast rule for all securities. A lot of securities do not abide by these settings. Whether you should make amendments or not, it’s your call. It depends upon your preferences and volatility in the market. 


The Commodity Channel Index or the CCI changes and operated within the upper and bottom limits. Both the oscillators RSO and Stochastics we discussed before are bound within 0 and 100. They cannot go above 100 or fall lower than 0. The CCI is a banded oscillator that does not have any range. The CCI calculates the ongoing price and the average price over a stipulated period. 

It is considered to be unbound as there are no top and bottom limits that apply to the price difference. Though they do not have bounds, most of the CCI values measure within +100 and -100. The consistency and stability in the CCI levels make it a useful banded oscillator.

How To Use MACD To Confirm A Trend 

By now, you would have a fair idea about MACD and what they normally do, and how to use them. The MACD is a momentum and trend indicator. The traders should use all the signals given by the MACD indicator to forecast trends, change in price, and momentum. The MACD generates different signals that are used to confirm a trend. We have uncovered the signals in detail to give a better understanding. 

The Hook

The MACD hook appears when the signal line is trying to penetrate or has penetrated the MACD line. In simpler words, the hook is a situation where the signal line and the MACD line touch each other. 

This hook checks the movements that are going against the current trend. The hook is helpful when the traders want to identify trade setups. The hook confirms whether the trend has changed or not. You should wait for the hook to occur if you want to enter the position. 

The Concealed Divergence

We want you to know about the concealed divergence if you wish to use the MACD to confirm the trend. When the indicator makes in the opposite direction of the stock price, it’s said to be divergent. Hidden or concealed divergence is very different from divergence. 

The bullish divergence occurs when the ongoing low of the price goes beyond the swing low. The bearish divergence makes the opposite pattern. The bearish divergence takes place when the market witnesses a down-trend. 

The Histogram 

This is the final yet the most important thing about the MACD. The histogram squeeze happens when the market has low volatility, and the price of the stocks starts getting small and tight. In such situations, you can experience a catastrophic breakout that can shatter your account. You can identify this situation through the MACD histogram.

To confirm the upcoming breakout, you first need to have a look at the prices. The prices should be in a small range to indicate the breakout. At this time, the histogram will look flat. You can continue trading once this trend diminishes and the price is normalizing.

Key Takeaways 

Now you know to have your way with oscillators and momentum indicators. Hopefully, this article would have cleared any doubts you might be having regarding indicators. The best way to learn and understand these indicators is by using them. Try to spend more time working on your strategies and devising a well-planned set of indicators. 

You need to know that indicators just serve the purpose of forecasting and predicting. In the end, it should be the trader’s call to invest in the market or not.  Use these analytical tools judiciously, and don’t forget to try new indicators. Trading is all about applying your experience and knowledge to make the best possible trades.