Stochastic Oscillator Commodities Trading Technical Analysis & Stochastic Oscillator Trading Signals

Developed by George C. Lane

The Stochastic Oscillator is a momentum indicator - it shows the relation between the current closing commodity price relative to the high & low range over a given number of n periods. Oscillator uses a scale of 0-100 to draw its values.

This Oscillator is based on the theory that in an up commodity trend market the commodity price closes near the high of the commodity price range & in a downwards trending market the commodity price will close near the low of the commodity price range.

The Stochastic Lines are drawn as 2 lines- %K & %D.

• Fast line %K is the main
• Slow line %D is the signal

3 Types of Stochastics Commodities Trading Oscillators: Fast, Slow & Full Stochastics

There are Three types are: fast, slow & full Stochastic. Three indicators look at a given chart period for example the 14-day period, & measures how the commodity price of today’s close compares to the high/low range of the time period that's being used to calculate the stochastic.

This oscillator works on the principle that:

• In an upward commodity trend, commodity price tends to close at the high of the candlestick.
• In a downwards commodity trend, commodity price tends to close at the low of the candlestick.

This commodity technical indicator shows the momentum of the Commodity Trading trends, & identifies the times when a market is overbought or oversold.

Commodity Trading Technical Analysis & How to Generate Trading Signals

Most common techniques used for analysis of the Stochastic Oscillators to generate commodity signals are cross-overs trading signals, divergence signals and overbought over-sold levels. Following are the methods used for generating signals

Commodity Trading Crossover Trading Signals

Buy signal - %K line crosses above %D line (both lines moving upwards)

Sell signal - %K line crosses below %D line (both lines moving downwards)

50-level Crossover:

Buy signal - when stochastic lines cross above 50 a buy signal is generated.

Sell signal - when stochastic lines cross below 50 a sell signal is generated.

Divergence Commodity Trading

Stochastic is also used to look for divergences between this indicator & the commodity price.

This is used to determine potential commodity trend reversal signals.

Upwards/rising commodity trend reversal- identified by a classic bearish divergence

Commodity Trading Trend reversal - identified by a classic bearish divergence

Downwards/descending commodity trend reversal- identified by a classic bullish divergence

Commodity Trading Trend reversal - identified by a classic bullish divergence

Overbought/Oversold Levels on Technical Indicator

Stochastic is mainly used to identify potential overbought & over-sold conditions in commodity price movements.

• Overbought values greater than 70 level - A sell signal occurs when the oscillator rises above 70% & then falls below this level.

Overbought - Values Greater 70

• Over-sold values less than 30 level - a buy signal is generated when the oscillator goes below 30% & then rises above this level.

Oversold - Values Less Than 30

Trades are generated when the Stochastic Oscillator crosses these levels. However, overbought/oversold levels are prone to whipsaws especially when the commodities market is trending upwards or downwards.