The stochastic oscillator is a momentum indicator that is widely used in forex trading to pinpoint potential trend reversals. This indicator measures momentum by comparing closing price to the trading range over a given period. The charted stochastic oscillator actually consists of two lines: When these two lines intersect, it signals that a trend shift may be approaching. In a chart displaying a pronounced bullish trend, for example, a downward cross through the signal line indicates that the most recent closing price is closer to the lowest low of the look-back period than it has been in the previous three sessions.
After sustained upward price action, a sudden drop to the lower end of the trading range may signify that bulls are losing steam. Ranging from 0 to , the stochastic oscillator reflects overbought conditions with readings over 80 and oversold conditions with readings under Crossovers that occur in these outer ranges are considered particularly strong signals. Many traders ignore crossover signals that do not occur at these extremes.
When creating trade strategy based on the stochastic oscillator in the forex market, look for a currency pair that displays a pronounced and lengthy bullish trend.
The ideal currency pair has already spent some time in overbought territory, with price nearing a previous area of resistance. Look for waning volume as an additional indicator of bullish exhaustion. Once the stochastic oscillator crosses down through the signal line, watch for price to follow suit. Though these combined signals are a strong indicator of impending reversal, wait for price to confirm the downturn before entry — momentum oscillators are known to throw false signals from time to time.
Combining this setup with candlestick charting techniques can further enhance your strategy and provide clear entry and exit signals. Dictionary Term Of The Day. A conflict of interest inherent in any relationship where one party is expected to Broker Reviews Find the best broker for your trading or investing needs See Reviews. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education.
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By Investopedia March 20, — 9: Understand the basics of the stochastic oscillator and how analysts and traders use this measure of trend momentum to predicts Explore the function of the stochastic oscillator indicator, and discover other technical indicators traders use to complement Understand how and why analysts and traders consider the stochastic oscillator a useful tool for anticipating trend exhaustion Gain a basic understanding of the stochastic oscillator and how this technical indicator is designed to predict reversals Discover how the stochastic oscillator and the Stochastic Momentum Index differ and why the latter is considered a more refined Learn how the stochastic oscillator is used as a momentum indicator in swing trading, and understand how the oscillator is The stochastic oscillator and the moving average convergence divergence MACD are two indicators that work well together.
Weekly Stochastics uncovers patterns of buying and selling pressure that can be predicted and capitalized upon by observant investors and traders. This oscillator has been used since the s by traders and investors to anticipate areas where the market may change direction. Traders can use "the usual suspects" standard indicators for trend trading when it comes to choosing indicators for investing in commodities.
Relative strength indicators measure performance between similar instruments, uncovering opportunities that can translate into reliable profits. Technical analysis is basically an attempt to disprove the credo that "Past performance is not indicative of future results.
A technical momentum indicator that compares a security's closing A conflict of interest inherent in any relationship where one party is expected to act in another's best interests. Passive investing is an investment strategy that limits buying and selling actions. Passive investors will purchase investments How much a fixed asset is worth at the end of its lease, or at the end of its useful life.
If you lease a car for three years, A target hash is a number that a hashed block header must be less than or equal to in order for a new block to be awarded. Get Free Newsletters Newsletters.More...