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Start Trading with Stochastics

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The Stochastic Oscillator is a momentum indicator that shows the location of the close relative to the high-low range over a set number of periods. The indicator can range from 0 to 100.

The closing price tends to close near the high in an uptrend and near the low in a downtrend. If the closing price then slips away from the high or the low, then momentum is slowing. Stochastics are most effective in broad trading ranges or slow-moving trends. Two lines are graphed, the fast oscillating %K and a moving average of %K, commonly referred to as %D.

Momentum shifts directions when these two Stochastic lines cross. Therefore, a trader takes a signal in the direction of the cross when the blue line crosses the red line. As you can see from the picture above, the short-term trends were detected by Stochastic. However, traders are always looking for ways to improve signals, so they can be strengthened. There are two ways we can filter these trades to improve the strength of signal.

Many forex traders use the Stochastic in different ways, but the main purpose of the indicator is to show us where the market conditions could be overbought or oversold. In this class we will look at 4 different strategies using fast and slow stochastics.

Barry Norman
The Director of Investors Trading Academy as well as a published author and educator. Barry brings with him over 35 years of financial market knowledge and experience. He holds an MBA in Finance and Economics from UCLA and an undergraduate degree in Economics from the University of Maryland. Barry was award the title of “Best Education in Europe” by Global Banking & Finance. Barry is also a presenter for the MoneyShow and many well-known news sources.
Start Trading with Stochastics
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