Stochastic Indicator Cross-over Signals

One way to analyze the signals provided by the Stochastic Oscillator indicator is similar to a moving average cross over strategy. In the Stochastic indicator, a crossover signal happens when the %K & %D lines cross over. These crossover signals should be taken with scrutiny as, out of the forex stochastics oscillator signal interpretations discussed so far, they produce the most whipsaws. Whipsaws or False signals are especially common in Fast Stochastic Oscillator version.

Stochastic Oscillator Crossover Signals:

• For a Sell forex signal, a trader looks for the %K line to move below the %D line.
• For a Buy signal, a trader looks for the %K line to move above the %D line.

Since stochastic crossovers signals of %K and %D are often unreliable, they should be verified with other technical indicators.

The Stochastic Oscillator Center-line

The stochastic oscillator center-line lies at the 50% level in the stochastic indicator panel. It implies that there is a balance between bulls and bears. Situations when the stochastic indicator crosses the center-line can give an insight into whether the buyers or sellers will begin to control the market trend.

Stochastic Oscillator Center-line Forex Cross-overs Signals

• If the Stochastic indicator is staying below the center-mark (between 40%-50%) and crosses up, then it is an indication that the bulls are taking control of the market.
• If the Stochastic indicator is staying above the center-mark (around 50%-60%) and then crosses below the center-mark, it can be an indication that the forex bears have taken control of the market.