Intermediate – STOCHASTIC OSCILLATOR (Stochastic)

Intermediate – STOCHASTIC OSCILLATOR (Stochastic)

Jun 18,2020

STOCHASTIC OSCILLATOR (Stochastic)


(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
market


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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