Stochastic Oscillator Indicator Trading Analysis and Stochastic Oscillator Technical Signals

Created by George C. Lane

Stochastic Technical Indicator is a momentum technical indicator - it shows the relation between the current closing price in relation to the high & low range over a given number of n periods. Oscillator Indicator uses a scale of 0-100 to draw its values.

How to Place 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 and %D.

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

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

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

This oscillator trading 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, & identifies the times when a market is over-bought or oversold.

Analysis and How to Generate 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 Trade Signals

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

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

50-level Cross over:

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

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

Divergence XAUUSD Trading

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

This is used to determine potential trend reversal setups.

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

How Do I Analyze 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 Oscillator Indicator Analysis

Gold Trend reversal - identified by a classic bullish divergence

Overbought/Over-sold Levels on Indicator

Stochastic is mainly used to identify the potential overbought and oversold conditions in price moves.

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

Stochastic Technical Indicator - Stochastic Oscillator Indicator Analysis

Over-bought - Values Greater 70

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

Stochastic Technical Indicator - Stochastic Oscillator Indicator Analysis

Oversold - 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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