The Ultimate Stochastic Oscillator Strategy

Do you want to know more about Stocastic Oscillator and stochastic trading? With our ultimate stochastic oscillator strategy you will learn what stochastic oscillator is, how to trade with stocastich indicator and much more.

The Stochastic Oscillator Strategy Explained

The Stochastic Oscillator plots itself on the bottom of your chart typically, and is used as a range bound indicator. What I mean by this is that it tends to perform better and choppy markets as it shows momentum in a basic range. The calculation performed in this indicator is the most recent close, the highest higher over the last X amount of candles, and then the lowest low over the last X amount of candles. In other words, it shows overbought and oversold conditions over a certain period of time.

There is the 80 line and the 20 line, which shows overbought and oversold conditions respectively. When the lines of the indicator cross, and are either above or below the 80 or 20, it fires off a trading signal. As I look through this Stochastic Oscillator, you can see that there have been several buying and sell signals from time to time. If you are a little bit more aggressive, you can take trades closer to the 80 or 20 line without the 2 lines going into the overbought or oversold condition, but most traders tend to wait until we are outside of that middle range between the 80 and 20 handle.

Stochastics can be used in trending environments, but they tend to be much less reliable. Because of this, most traders simply use them to trade work seems to be very range bound markets to begin with. It should also keep in mind that Stochastics can show divergence as well, so this means that essentially momentum is going higher while prices are going lower or vice versa. This works the same as with all other oscillators, as it shows that there is a potential trend change.