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Stochastic Forex Indicator Overbought and Oversold Levels

Stochastic oscillator forex indicator is used to look for overbought/oversold forex trading signals. Overbought levels are above 80% level and oversold levels are below 20% level.

 

The key is to not only look at Stochastic oscillator forex indicator when the %K or %D lines touch or cross overbought/oversold, but also when they cross over and back through these levels.

 

Just as with other forex momentum indicators such as RSI forex indicator the Stochastic oscillator forex indicator can stay inside the overbought and oversold levels for some time. When this forex stochastic oscillator indicator stays within these levels for a long time it indicates strong upward Forex trend (overbought) or strong downward Forex trend (oversold).

 

When the stochastic lines cross back below or above these overbought and oversold levels it is usually a good indication of an upcoming forex trend reversal.

 

A forex trader can look for further forex trading signals to make the oversold or overbought levels more reliable if:

 

Buy Forex Trading Signal Using Stochastic Oscillator Oversold Levels

  • Before Buying, the %K and %D lines turn upward from below 5%.
  • A reading that is floating near 5% means that forex bears are in control and there is selling of the forex currency pair. A forex trader should wait for the Stochastic Oscillator to move back above 5% as a sign that the selling pressure is easing.

 

The Buy forex trading signal is confirmed when the stochastic oscillator forex indicator moves above oversold, then after a while returns to oversold but this time moves up immediately without staying at the overbought.

Buy Forex Trading Signal Using Stochastic Oscillator Oversold Levels

Buy Forex Trading Signal Using Stochastic Oscillator Oversold Levels

 

Sell Forex Trading Signal Using Stochastic Oscillator Overbought Levels

  • Before Selling, the %K and %D lines turn down from above 95%.
  • A reading that is floating above 95% means that forex bulls are in control and there is buying of the forex currency pair. A forex trader should wait for the Stochastic to move below 95% as a sign that the buying pressure is easing.
  • The sell forex trading signal is confirmed when the stochastic moves below overbought, then after a while returns to overbought but this times moves down immediately without staying at the overbought.

Sell Forex Trading Signal Using Stochastic Oscillator Overbought Levels

Sell Forex Trading Signal Using Stochastic Oscillator Overbought Levels

 

Looking at different forex trading chart time frames when using oversold and overbought levels can also help to determine the correct entry strategy when opening a forex trade.

The main theory is to trade with the forex market trend. Always double check the forex trading signals with the longer term stochastic oscillator indicators to confirm forex trading signals on the shorter forex chart time frame periods.

 

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