Stochastic Indicator Crossover Signals

One way to interpret the signals provided by the Stochastic Oscillator indicator is similar to a moving average cross over strategy. In the Stochastic oscillator indicator, a crossover signal happens when the %K and %D lines cross over. These crossover signals should be taken with scrutiny as, out of the stochastics oscillator signal interpretations discussed so far, they produce the most whipsaws. Whipsaws or False signals are especially common in the Fast Stochastic Oscillator version.

Stochastic Oscillator Crossover Trading Signals:

• For a Sell signal, a trader looks for the % K line to move below % D line.
• For a Buy trade signal, a trader looks for % K line to move above % D line.

Since stochastic crossovers signals of %K and %D are often unreliable, they should be verified with other indicators.

The Stochastic Oscillator Center-line

The stochastic oscillator center-line lies at the 50% level in the stochastic indicator panel. It implies that there is a balance between bulls and bears. Situations when the stochastic indicator crosses the center-line can give an insight into whether the buyers or sellers will begin to control the market trend.

Stochastic Oscillator Center-line Crossovers Signals

• If the Stochastic oscillator indicator is staying below the center-mark (between 40%-50%) and crosses up, then it is an indication that the bulls are taking control of the market.
• If the Stochastic oscillator indicator is staying above the center-mark (around 50%-60%) and then crosses below the center-mark, it can be an indication that the bears have taken control of the market.