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Stochastic Trading Indicator Over-bought & Oversold Levels

Stochastic oscillator forex indicator is used to look for over-bought over-sold forex signals. Over-bought levels are above 80% level & over-sold levels are below 20% level.

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 like RSI the Stochastic oscillator forex indicator can stay inside the overbought & oversold levels for a while. When this stochastic 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 and generally a good indication of an upcoming forex trend reversal.

A trader can look for further forex signals to make the over-sold or overbought levels more reliable if:

Buy Trade Signal Using Stochastic Oscillator Technical Oversold Levels

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

The Buy signal is confirmed when the stochastic oscillator forex indicator goes above over-sold, then after a while returns to over-sold but this time moves upward immediately without it staying at the over-sold.

Buy Trade Signal Using Stochastic Oscillator Over-sold Levels

Buy Signal Using Stochastic Oscillator Technical Over-sold Levels

Sell Trade Signal Using Stochastic Oscillator Overbought Levels

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

Sell Signal Using Stochastic Oscillator Technical Overbought Levels

Sell Trade Signal Using Stochastic Oscillator Overbought Levels

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

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

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