Momentum oscillators react very quickly to short-term changes in price, flipping back and forth between overbought and oversold levels. Oscillators are useful in both ranging and trending currency markets.
The most common momentum oscillators include Relative Strength Index (RSI), Commodity Channel Index (CCI) and the Stochastic Oscillator. Let's take a closer look..
1) Relative Strength Index (RSI)
Developed by J. Welles Wilder, the Relative Strength Index (RSI) is an extremely popular price following oscillator as a measure of a currency pair's price relative to itself and its past performance.
The RSI is fluctuating between 0 to 100, and like all other oscillators, it indicates overbought and oversold readings. The area above 70 is generally considered to be the overbought region (looking for sell signals), and the region below 30 is referred to as the oversold region (looking for buy signals).
Developed by Donald Lambert, CCI measures the position of price in relation to its moving average and is designed to identify cyclical turns. CCI works well in ranging markets and typically fluctuates between +100 and -100 readings.
CCI is considered to be overbought at +100 readings or above and oversold at -100 readings or below.
Developed by George C. Lane, " The Stochastics Man" in the 1950s. The Stochastic Oscillator tracks market momentum and consists of two oscillator lines, called %D and %K. Popular types of Stochastic Oscillators are: Fast Stoch and Slow Stoch.
