Oscillators are types of indicators best used for identifying or confirming a ranging market. It indicates when a market is overbought or oversold. A trader may use that information to sell or buy, respectively. The most common oscillators are Stochastic and Relative Strength Index (RSI). A quick search on the Internet will give you tons of information on how to apply them to your trading.
Most importantly, what you need to know is this: if the market is trending, oscillators do not work. For example, if the market is trending up, the oscillator will indicate it is overbought. If a trader were to blindly follow the oscillator and click sell, he or she might be in trouble. The reverse happens for a market that is trending down. The oscillator will indicate it is oversold. If a trader were to click buy at this point, he or she might be in more pain.
The key is knowing which indicator to use for what type of market. If you trade a trending market, you should not use an oscillator. For more information, refer to my answer to “Question from Ali: Can you recommend what indicators I can use to identify winning trades?” dated 11 September 2012.
To your success as a profitable trader,
Mario
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