There are  two categories regarding oscillators, bounded and unbounded. Bounded oscillator is a technical indicator that oscillates between bounds. These bounds signal when a financial instrument is relatively oversold or overbought. When it is overbought chances are that it is about to move downwards and when it is oversold chances are that it is about to move upwards. So, if an oscillator is overbought then we should start thinking of selling a stock and if it is oversold we should start thinking of buying the stock.

The above is a general definition of bounded oscillators and it is not sufficient for making trading decisions, because in real trading many other practical considerations must be taken into account.

First of all oscillators are not meant to be used in isolation, without any other trading criteria like support/resistance or trend. Secondly, they are performing mostly in sideways or lightly trending charts. In aggressive trending charts they tend to produce repetitive false signals because they stay long time in the oversold or overbought area, without reversing. Moreover, despite their primary use in generating signals, the fact that many traders use them might have lowered their effectiveness and credibility. This can happen with every technical indicator, not only oscillators and it can lead even in the inverse from the primary use.

Another practical consideration that must be taken into account before using an oscillator is the definition of the bounds. Most of the times bounds are expressed as zones, i.e. in RSI (relative strength index) the classical upper bound is from 70 to 100 (overbought) and the lower bound is from 0 to 30 (oversold). In real trading every stock or financial instrument, depending on its price behavior and the general market conditions, might have different zones.

Conclusively, before applying an oscillator in trading decisions we must learn about all of its drawbacks and advantages and see if and how it works to the particular financial instrument. When we have done these then the oscillator can be used as an additional trading criterion and not in isolation in making trading decisions, although the use of any kind of oscillator is not a prerequisite in successful trading decisions.