Stochastic Oscillator Indicator Trading Analysis and Stochastic Oscillator Technical Signals

Developed & Created by George C. Lane

Stochastic is a momentum technical technical indicator - it shows the relation between the ruling closing price in relation to the high & low range over a given No. of n periods. Oscillator Indicator uses a scale of 0-100 to draw its values.

How to Add Trading Stochastic Oscillator Indicator on Chart

This Oscillator is based on the theory that in an up trend market the price closes near high of price range and in a downwards trending market the price will close near the low of the price range.

The Stochastic Lines are drawn as 2 lines- %K & %D.

Fast line %K is the main
Slow line %D is the trading signal

Three Types of Stochastics Trading Oscillators Indicators: Fast, Slow and Full Stochastics

There are 3 types are: fast, slow and full Stochastic. The three technical technical indicators look at a specified chart period for example 14 day period, and measures how price of today's close compares & analyzes to the high and low range of time period that's being used to calculate the stochastic indicator.

This oscillator works on the principle that:

In an upwards trend, price oftenly tends to close at the high of candlestick.
In a downwards trend, price tends to close at the low of candlestick.

This indicator shows the force of the trends, and identifies the times when a market is over-bought or oversold.

Analysis and How to Generate Trading Signals

Most common techniques used for analysis of Stochastic Oscillators to generate signals are cross-overs signals, divergence signals and overbought over-sold levels. Following are the methods used for generating trade signals

XAUUSD Cross-over Signals

Buy signal - %K line crosses above the %D line (both lines heading and moving upwards)

Sell trading signal - %K line crosses below the %D line (both lines heading downward)

50-level Cross over:

Buy signal - when stochastics indicator lines cross above the 50 center line a buy signal gets generated.

Sell signal - when stochastic indicator lines move below 50 a sell signal gets generated.

Divergence XAU/USD Trading

Stochastic is also used to look for divergences between this technical indicator and the price.

This is used to determine potential trend reversal setups.

Upward/rising trend reversal - identified by a classic bearish divergence

How Do I Interpret Trading Stochastic Oscillator in Chart?

Gold Trend reversal - identified by a classic bearish divergence

Downward/descending trend reversal - identified by classic bullish divergence

Stochastic XAUUSD Indicator - Stochastic Indicator Indicator Analysis

Gold Trend reversal - identified by a classic bullish divergence setup

Overbought/Over-sold Levels in Indicator

Stochastic is mainly used to identify the potential over-bought and over-sold conditions in price moves.

Over-bought values greater than 70 level - A sell signal forms when the oscillator rises above 70% & then falls below this level.

Stochastic - Stochastic Oscillator Indicator Analysis

Overbought - Values Greater 70

Over-sold values less than 30 level - a buy signal gets generated when oscillator goes below 30% and then rises above this level.

Stochastic - Stochastic Oscillator Indicator Analysis

Over-sold - Values Less Than 30

Trades are derived/generated when Stochastic crosses these technical levels. However, overbought/oversold levels are prone to whip-saws especially when market is trending upward or downward.

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