Stochastic Oscillator Technical Analysis in Trading Charts

Stochastic Oscillator Technical Analysis and Stochastic Oscillator Technical Signals

Developed by George C. Lane

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

Stochastic Oscillator Trading Indicator - No Nonsense Forex Stochastic Oscillator Trading Indicator 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 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 & full Stochastic. The three technical indicators look at a given chart period for example 14 day period, and measures how the market price of today's close compares to the high and low range of time period that's being used to calculate the stochastic.

This oscillator trading 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 candle.

This indicator shows the momentum of the Forex trends, and identifies the times when a market is over-bought or oversold.

Forex Technical Analysis & Generating Signals

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

FX 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 a buy trading signal is generated.

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

FX Divergence Trading

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

This is used to determine potential trend reversal signal.

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

Indicators MT4 Stochastic Oscillator

Trend reversal - identified by a classic bearish divergence

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

Over-bought/Oversold Levels on Technical Indicator

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

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

Stochastic Oscillator Technical Analysis in Trading - Indicators MT4 Stochastic Oscillator

Overbought - Values Greater 70

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

Stochastic Oscillator Trading Indicator Analysis - Technical Indicators MT4 Stochastic Oscillator

Over-sold - Values Less Than 30

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

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