The main idea behind Stochastic indicator according to its developer, George Lane, lies in the fact that rising price tends to close near its previous highs, and falling price tends to close near its previous lows. Stochastic is a momentum oscillator, which consists of two lines: %K - fast line, and %D – slow line and it is plotted on the scale between 1 and 100.
Trading with the Stochastic indicator
- Stochastic lines cross — indicates the trend change.
- Stochastic readings above up level — currency pair is overbought,
- Stochastic staying above up level — uptrend is running strong.
- Stochastic exiting up level downwards — expect a correction down or beginning of a downtrend.
Same for readings below down level — currency pair is oversold, staying below downtrend is running strong, exiting upwards above down — expect an upward correction or a beginning of an uptrend.
How to interpret the Stochastic indicator
There are also so-called "trigger levels" that are added to the Stochastic chart at up and down levels. Those lines suggest when the market is oversold or overbought once Stochastic lines pass over them.
How to trade with Stochastic indicator
Stochastic lines crossovers that happen above up level and below down level are treated as strongest signals, compare to crossovers outside those levels. Traders may choose the sensitivity of their Stochastics. The smaller the Stochastic parameters, the faster it will react to market changes, the more crossovers will be shown.
Like all indicators created from Starfield, all this description and tips are strong coded so you need just to read the message from the right side of the indicator to understand the market conditions.
Sensitive Stochastic (for example 5, 3, 3) is useful for observing rapidly changing market trends. But because it is too choppy it should be traded in combination with other indicators to filter out Stochastic signals.
Telegram & Email Signal Alerts
You can receive either an email or instant Telegram message direct to your PC or mobile phone the moment this indicator shows a signal to enter a trade.
Conditions for the Alert Signals
The following conditions must be true to send a buy signal alert, the reverse applies to sell signals:
- Trend: Bullish
- Signal: Buy.
This indicator provides two different types of signals, one to tell you the direction of the trend and the other is when to enter a trade and if both the trend and signal showing bullish or bearish than this is not the optimal time to submit an order, wait until the signal to show buy or sell as shown in the example above.
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