A tool used in technical analysis, which attempts to identify price direction by using pricing charts. Oscillators are useful in nontrending markets, in which prices move sideways. They also can be helpful to alert traders to short-term market conditions when markets are moving up or down and become overbought or oversold. Oscillators can signal that a trend is ending its run, even before that is evident in the price movement. Oscillators are calculated by using momentum, which measures the rate of change in prices, instead of actual price levels.
The formula for momentum is M = V ¥ Vx.
V is the last closing price and Vx is the closing price ten days ago, or the price from some other interval. A ten-day momentum is commonly used.