A Complete Guide to Stochastic Indicator

Stochastic Oscillator

Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading. Over time, you will learn to use the Stochastic indicator to fit your own personal trading style. This simple momentum oscillator was created by George Lanein the late 1950s.

Stochastic Oscillator

A buy trigger only forms when the stochastics are able to both cross back up through the 20-band. Like a rubber band that has been stretched and finally let go on one side, the price tends to snap back up with the stochastic 20-band crossover. On the flipside, an 80-band stochastic crossover down forms a sell/short-sell trigger.


As with all technical indicators, the stochastic is a tool among many tools. It works best when used in conjunction with price indicator as part of a complete trading methodology.

There are no default values for creating the Full Stochastic Oscillator. All periods used for calculation of the %K and the %D lines have to be integer values and the modifications should be EMA and SMA. The series are lines by default, it is possible to change the series type any time using the seriesType() method. In our research, our indicators were running all over the page, so we developed the technique of expressing them as a percentage of 100. Stochastic of Two-Pole SuperSmoother is a Stochastic Indicator that takes as input Two-Pole SuperSmoother of price.

What is the stochastic oscillator used for?

However, price can remain overbought and continue higher while the stochastic is above the 80-band. I use the stochastic RSI indicator for scalping by using it with the short term support or resistance or swing high’s and low’s in options. He trades on a higher timeframe so are all his teachings. It’s https://www.bigshotrading.info/ simply an entry trigger to enter a trade once your other trading criteria are met. Rather, it’s an entry trigger to get you into a trade. You’ll look for trading setup on the lower timeframe – to go short. You want to make sure the daily timeframe is not in a downtrend with Stochastic overbought.

Stochastic Oscillator

The chart of Microsoft shows numerous periods during which the stochastics oscillator indicates that the stock is overbought given a %K above 80. At the end of many of these periods, a dip below 80 coincides with a bearish crossover of the %D line and immediately precedes a pullback that could be traded on. In the latter case, %D is calculated as a three-day simple moving average of the smoothed %K.

Let’s Read the Chart

The next decline is then expected to result in a tradable bottom. According to George Lane, the Stochastics indicator is to be used with cycles, Elliott Wave Theory and Fibonacci retracement for timing.

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To sum up, as one of the most popular widely-used technical indicators on the market, the stochastic indicator is mainly used to identify overbought and oversold levels. Moreover, when combined with other indicators, the Stochastic Oscillator can help a trader identify possible trend reversals and potential entry and exit points. Stochastics attempts to predict turning points by comparing the closing price of a security to its price range. Prices tend to close near the extremes of the recent range just before turning points. In the case of an uptrend, prices tend to make higher highs, and the settlement price usually tends to be in the upper end of that time period’s trading range. The stochastic oscillator is a valuable indicator for overbought and oversold conditions.

How to Trade Forex Using the Stochastic Indicator

If you “chase” a long entry above the 80-band, be aware that the rug-pull occurs when the stochastic falls back under the 80-band. Knowing this should provide a heads up when the objective is to buy high and sell higher.

  • Stochastics are most effective in broad trading ranges or slow moving trends.
  • A bear trade setup occurs when the stochastic indicator makes a lower low, but the instrument’s price makes a higher low.
  • Introduction I modified the script ”Fisher Stochastic Center of Gravity” of @DasanC for this indicator.
  • Of these, the scan then looks for stocks with a Stochastic Oscillator that turned down after an overbought reading .
  • You want to make sure the daily timeframe is not in a downtrend with Stochastic overbought.
  • Lane did not claim he originated the slow stochastic oscillator.