Trade Forex Trading

Stochastics Oscillator Overbought and Oversold Levels

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

Focus on more than just the %K or %D lines hitting overbought or oversold in the Stochastic oscillator. Watch for crossovers and returns through those levels too.

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

When stochastic lines go back below or above the levels where prices are too high or low, it usually means a trend might change soon.

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

Buy Trading Signal Using Stochastics Oscillator Oversold Levels

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

A buy signal is confirmed using the stochastic oscillator when it moves above the oversold level, briefly returns to oversold, and then quickly shifts upward without lingering in the oversold zone.

Stochastic Overbought Over-sold Levels - Generating Buy and Sell Signal Using Stochastics Indicator

Buy Trading Signal Using Stochastic Indicator Oversold Levels

Sell Signal Using Stochastic Overbought Levels

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

Stochastics Oscillator Overbought Oversold Levels - Generating Buy & Sell Signal Using Stochastic Oscillator

Sell Signal Using Stochastic Overbought Levels

Observing multiple trade chart timeframes using overbought and oversold levels can assist in selecting optimal trade entry points.

Trade along the trend as the main rule. Check short-term signals against longer stochastic indicators for confirmation.

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