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Stochastic Oscillator XAUUSD Technical Analysis and Stochastic Oscillator XAUUSD Signals

Developed by George C. Lane


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

Stochastic Oscillator Technical XAUUSD Indicator



This Oscillator is based on the theory that in an up xauusd trend market the gold price closes near the high of the gold price range and in a downward trending market the gold price will close near the low of the gold price range.


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


  • Fast line %K is the main

  • Slow line %D is the signal


3 Types of Stochastics: Fast, Slow and Full

There are 3 types are: fast, slow and full Stochastic. The three indicators look at a given chart period for example the 14-day period, and measures how the gold price of today’s close compares to the high/low range of the time period that is being used to calculate the stochastic.


This oscillator works on the principle that:


  • In an upward xauusd trend, gold price tends to close at the high of the candlestick.

  • In a downward xauusd trend, gold price tends to close at the low of the candlestick.



This indicator shows the momentum of the XAUUSD trends, and identifies the times when a market is overbought or oversold.


XAUUSD Technical Analysis and Generating XAUUSD Signals

The most common techniques used for technical analysis of Stochastic Oscillators to generate xauusd signals are crossovers signals, divergence signals and overbought oversold levels. The following are the methods used for generating trade signals


Crossover Signals

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

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


50-level Crossover:

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

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


Divergence XAUUSD

Stochastic is also used to look for divergences between this indicator and the gold price.


This is used to determine potential xauusd trend reversal xauusd signals.


Upward/rising xauusd trend reversal- identified by a classic bearish divergence


xauusd trend reversal- identified by a classic bearish divergence

XAUUSD Trend reversal - identified by a classic bearish divergence


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Downward/descending xauusd trend reversal- identified by a classic bullish divergence

xauusd trend reversal- identified by a classic bullish divergence

XAUUSD Trend reversal - identified by a classic bullish divergence


Oversold/Overbought Levels

Stochastic is mainly used to identify potential overbought and oversold conditions in gold price movements.


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

Overbought levels Stochastic Oscillator values greater 70

Overbought - Values Greater 70



  • Oversold values less than 30 level - a buy xauusd signal is generated when the oscillator goes below 30% and then rises above this level.

Oversold levels Stochastic Oscillator values less than 30

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 gold market is trending upwards or downwards.

 

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