There are times when oscillators are more useful than at others. During choppy market periods, as prices move sideways for several weeks or months, oscillators track the price movement very close‑
ly. The peaks and troughs on the price chart coincide almost exact­ly with the peaks and troughs on the oscillator. Because both price and oscillator are moving sideways, they look very much alike. At some point, however, a price breakout occurs and a new uptrend or downtrend begins. By its very nature, the oscillator is already in an extreme position just as the breakout is taking place. If the break­out is to the upside, the oscillator is already overbought. An over­sold reading usually accompanies a downside breakout. The trader is faced with a dilemma. Should he or she buy the bullish breakout in the face of an overbought oscillator reading? Should the down­side breakout be sold into an oversold market?
In such cases, the oscillator is best ignored for the time being and the position taken. The reason for this is that in the early stages of a new trend, following an important breakout, oscillators often reach extremes very quickly and stay there for awhile. Basic trend analysis should be the main consideration at such times, with oscillators given a lesser role. Later on, as the trend begins to mature, the oscillator should be given greater weight. (We'll see in Chapter 13, that the fifth and final wave in Elliott Wave analysis is often confirmed by bearish oscillator divergences.) Many dynamic bull moves have been missed by traders who saw the major trend signal, but decided to wait for their oscillators to move into an oversold condition before buy­ing. To summarize, give less attention to the oscillator in the early stages of an important move, but pay close attention to its signals as the move reaches maturity.