Trading oscillators can be constructed in many ways such as measuring the rate of change of a moving average or plotting the difference between two moving averages of different time durations.
 
Generally, such oscillators over many observations consistently reach levels on the upside or down side that are identified as extreme levels. These are referred to as overbought or oversold levels respectively
 
In markets which are 'range bound' or consolidating with up and down movements netting out to a sideways result, trading oscillators are very reliable in signalling good entry and exit trading points.
 
In trending markets, oscillators may regularly achieve overbought or oversold levels and stay there as the market continues to push on in apparent disregard. This behaviour at the birth of a new trend often signals its inherent strength.
 
An impending change in trend can often be detected by an oscillator failing to reach a previous high (or low as the case may be) while the market itself does so. This is referred to as either negative (bearish) or positive (bullish) divergence.
 
Often an oscillator will trace out its own trend by making a series of higher lows (up trend) or lower highs (down trend) which when broken is quite a reliable reversal indication.