The oscillator indicator can give an idea of whether the market is overbought or oversold. Overbought conditions mean the situation when prices are considered high enough at that time. This condition is often followed by a decrease in prices. Conversely, oversold conditions mean that prices are considered low enough at that time, and are often followed by rising prices.
When the oscillator indicator shows overbought indication, all you need to do is wait for the sell signal confirmation. Conversely, if the oscillator shows oversold indications, wait for a buy signal confirmation.
But you need to note that it is not always overbought or oversold conditions followed by reversing the direction of price movements. There are times when the indicator continues to be in the overbought or oversold area for some time but the price continues to move in the previous direction. To work around this, you must adjust the signal provided by the indicator with the ongoing trend. In an uptrend, look for only buy signals, whereas in a downtrend, look for only sell signals. This method is relatively safer.
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