Oscillator indicators were designed to work in sideways trading range markets when most stocks are trending sideways in a wide looping price pattern. The most popular are Stochastic and Wilder’s RSI. Oscillators are best used in sideways markets and do not perform well in trending markets.

During a strongly trending market or momentum market, an oscillator will signal an overbought or exit signal that is too early for the run. What is common to see in oscillators during a momentum market is the floating oscillation pattern. Oscillators will hover around the overbought or oversold line in a horizontal pattern for the duration of the momentum move. Note that if you use an oscillator during a momentum market and you do not take this into consideration, you will constantly exit a stock prior to the major move up.

All oscillators are overbought and oversold indicators with one exception: Time Segmented Volume, by Worden Brothers®. TSV is an oscillator, but tracks accumulation and distribution instead of tracking overbought and oversold conditions. TSV is a popular and reliable indicator that should be part of every toolkit -- especially for position and swing traders.