Intermediate – STOCHASTIC OSCILLATOR (Stochastic)

Intermediate – STOCHASTIC OSCILLATOR (Stochastic)

Jun 18,2020


(A)  Introduction

▸A momentum indicator used to
identify when an instrument is currently overbought
or oversold      

▸It is easy & simple to
understand with a high degree of accuracy in signaling when to enter the market.

▸It is used to measure the
degree of change between an instrument’s closing price and its price range over a period of time.

▸Displayed as an oscillator
(line graph), scaled from 0 to 100.

1) 80-100 : Indicates an overbought

2) 0-20 : Indicates an
oversold market

(B)  Overview

(C)  Application Of Stochastic

▸The application for Stochastic
is somewhat similar to the Relative Strength Index (RSI); Investors normally combine both indicators together
to obtain the same signal.

▸The concept applies the famous
saying of ‘Buy Low , Sell High’ 

▸Investors will sell when the
Stochastic lines are above 80; while buy when the lines are below 20.

▸One thing to note about the
Stochastic is that the lines may stay around the overbought & oversold levels for a long period of time;
Investors are advised to closely
monitor price actions for any breakout confirmation before trading with Stochastic signals.

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