The Stochastic oscillator is meant to girate between 100 and 0. A very low level means emotions have caused people to sell in panic. A very high level means emotions have caused people to become too greedy.
Look for buying opportunities when the Stochastic oscillator nears its lower reference line. Look for selling opportunities when the Stochastic oscillator nears its upper reference line. Buying when the Stochastic oscillator is low is emotionally hard because markets usually look terrible near bottoms, which is precisely the right time to buy. When the Stochastic indicator rallies to its upper reference line, it tells you to start looking for selling opportunities. This also goes against the grain emotionally. When the Stochastic indicator rallies to a top, the market often looks fantastic, which is a good time to sell.
Newbie traders use indicators by themselves. Don't do this. Use the Stochastic indicator with other technical indicators. Keep in mind that when a powerful uptrend begins, the Stochastic indicator quickly becomes overbought and begins showing premature sell signals. In a sudden panic sell off, the Stochastic indicator quickly becomes oversold and begins showing premature buy signals. Therefore, this indicator only works if you use it with other trend-following indicators.
What you need to do is to enter a position when the Stochastic indicator is at an extreme. If you try and wait until the Stochastic indicator turns, you'll miss too much of the move. Think of the extremes of the Stochastic as telling you how much emotion is in the market. The more the emotion, the better you can take money away from other traders.
If the Stochastic has a bullish divergence from the price, go long. If it has a bearish divergence from the price, go short. Bullish and bearish divergences are just a short way of saying that the Stochastic moves in the opposite direction as the price of the stock.
Do not buy when the Stochastics is above its upper reference line and do not sell short when it is below its lower reference line. This is probably the most useful way to use the Stochastic. Moving averages are better than the Stochastics at identifying trends, MACD-Histogram is better at identifying reversals, channels are better at identifying profit targets, and the ADX is quicker at catching entry and exit points. The trouble with them is that they give action signals most of the time. The Stochastic identifies no trade zones. - 23309
Look for buying opportunities when the Stochastic oscillator nears its lower reference line. Look for selling opportunities when the Stochastic oscillator nears its upper reference line. Buying when the Stochastic oscillator is low is emotionally hard because markets usually look terrible near bottoms, which is precisely the right time to buy. When the Stochastic indicator rallies to its upper reference line, it tells you to start looking for selling opportunities. This also goes against the grain emotionally. When the Stochastic indicator rallies to a top, the market often looks fantastic, which is a good time to sell.
Newbie traders use indicators by themselves. Don't do this. Use the Stochastic indicator with other technical indicators. Keep in mind that when a powerful uptrend begins, the Stochastic indicator quickly becomes overbought and begins showing premature sell signals. In a sudden panic sell off, the Stochastic indicator quickly becomes oversold and begins showing premature buy signals. Therefore, this indicator only works if you use it with other trend-following indicators.
What you need to do is to enter a position when the Stochastic indicator is at an extreme. If you try and wait until the Stochastic indicator turns, you'll miss too much of the move. Think of the extremes of the Stochastic as telling you how much emotion is in the market. The more the emotion, the better you can take money away from other traders.
If the Stochastic has a bullish divergence from the price, go long. If it has a bearish divergence from the price, go short. Bullish and bearish divergences are just a short way of saying that the Stochastic moves in the opposite direction as the price of the stock.
Do not buy when the Stochastics is above its upper reference line and do not sell short when it is below its lower reference line. This is probably the most useful way to use the Stochastic. Moving averages are better than the Stochastics at identifying trends, MACD-Histogram is better at identifying reversals, channels are better at identifying profit targets, and the ADX is quicker at catching entry and exit points. The trouble with them is that they give action signals most of the time. The Stochastic identifies no trade zones. - 23309
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I hope this lesson teaches you how to use the Stochastic Oscillator better and become rich. For more trading tips on the Stochastic go to stochastic oscillator
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