Stochastic Oscillator Technical Analysis in Trading Charts

Stochastics Oscillator Technical Analysis & Stochastic Oscillator Technical Signals

Developed & Created by George C. Lane

Stochastic Oscillator is a momentum technical technical indicator - it shows the relation between the present closing price compared to the high and low range over a specified No. of n periods. The Oscillator Technical uses a scale of 0-100 to plot its values.

Stochastic Oscillator - No Nonsense Forex Stochastic Oscillator Described

This Oscillator is based on the theory that in an uptrend market the price closes near high of price range & in a downwards trending market the price will close near the low of the 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 Oscillators Indicators: Fast, Slow & Full Stochastics

There are 3 types are: fast, slow and full Stochastic. The 3 indicators look at a specified chart period for example 14 day period, and gauges how price of today's close compares and analyzes to the high and low range of time period that's being used to calculate the stochastic oscillator.

This oscillator works on the principle that:

In an uptrend, price often tends to close at the high of stick.
In a downtrend, price tends to close at the low of candlestick.

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

FX Technical Analysis and Generating Signals

Most common techniques used for analysis of Stochastic Oscillators to generate Forex signals are cross overs signals, divergence signals & over bought oversold areas. The following are the techniques and methods used for generating trade signals

Forex Cross-over Signals

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

Sell trading signal - %K line crosses below the %D line (both lines heading downwards)

50-level Crossover:

Buy signal - when stochastics indicator lines cross above 50 mark a buy trading signal is generated.

Sell signal - when stochastic trading technical indicator lines cross below 50 mark a sell trading signal is generated.

Forex Divergence Trading

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

This is used to determine potential trend reversal signal.

Upward/rising trend reversal - identified by classic bearish divergence

Indicators MT4 Stochastic Oscillator

Trend reversal - identified by a classic bearish divergence setup

Downwards trend reversal - identified by a classic bullish divergence

identified by classic bullish divergence - Divergence Setup Described

Trend reversal - identified by a classic bullish divergence setup

Over-bought/Oversold Levels in Trading Indicator

Stochastic is mainly used to identify the potential overbought & oversold conditions in price movements.

Overbought values greater than 70 level - A sell trading signal forms when the oscillator rises above 70% and then falls below this technical level.

Stochastics Oscillator Technical Analysis in Trading - Indicators MT4 Stochastic Oscillator

Overbought - Values Greater 70

Oversold values less than 30 level - a buy trading signal is derived & generated when the oscillator goes below 30% & then rises above this technical level.

Stochastics Analysis - Technical Indicators MT4 Stochastic Oscillator

Oversold - Values Less Than 30

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

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