Mastering Stochastics in One Class

Stochastics is one of the oldest and most reliable indicators available. It works well in short- and long-term time frames. Forex traders, bitcoin traders, stock and bond investors and CFD traders all rely on this indicator.

In general, the area above 80 indicates an overbought region, while the area below 20 is considered an oversold region. A sell signal is given when the oscillator is above the 80 level and then crosses back below 80. Conversely, a buy signal is given when the oscillator is below 20 and then crossed back above 20. 80 and 20 are the most common levels used but can be adjusted as needed.

A crossover signal occurs when the two lines cross in the overbought or oversold region. A sell signal occurs when a decreasing %K line crosses below the %D line in the overbought region. Conversely, a buy signal occurs when an increasing %K line crosses above the %D line in the oversold region.

Divergences form when a new high or low in price is not confirmed by the Stochastic Oscillator. A bullish divergence forms when price make a lower low, but the Stochastic Oscillator forms a higher low. This indicates less downward momentum that could foreshadow a bullish reversal. A bearish divergence forms when price makes a higher high, but the Stochastic Oscillator forms a lower high. This shows less upward momentum that could foreshadow a bearish reversal.

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.