Analysis of Stochastic Oscillator

A lot of trading information can be gathered from the shapes and duration of the market tops and bottoms of the stochastic oscillator indicator.

The amount of time that the currency pair stays overbought or oversold is an important factor when analyzing the strength of the market trends.

Market Tops

Narrow market top that does not reach very high above 80 %

Narrow market tops means that the bulls are weak, and that the bears have overpowered the bulls very quickly. This means that the bears might push the price further down without much resistance from the bulls.

Very high, wide market tops

Wide market top mean that the bulls are very powerful much more than the bears and the ensuing short term trend reversal (retracement), will be very short lived. Retracement on the stochastic oscillator technical indicator will not even reach the oversold areas before the stochastic oscillator technical indicator moves back to the overbought levels.

Market Bottoms

A narrow market bottom that does not reach very deep below 20%

The narrow market bottom means that bears are weak in their attempt to push the price down, the bulls have gained control of the price pretty fast so the price movement upwards will continue for a while. And the upward market trend will continue for a while.

Very wide, deep market bottoms

A wide market bottoms is a sign that the bears are very strong and the sellers are in control of the price, therefore any retracement upwards will not stay for long.