Stochastic Oscillator Metals Analysis & Stochastic Oscillator Trading Signals

Developed by George C. Lane

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

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

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

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

3 Types of Stochastics Metal Oscillators: Fast, Slow & Full Stochastics

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

This oscillator works on the principle that:

• In an upward metals trend, metals price tends to close at the high of the candlestick.
• In a downward metals trend, metals price tends to close at the low of the candlestick.

This metals indicator shows the momentum of the Metals trends, & identifies the times when a market is overbought or oversold.

Metals Analysis & How to Generate Trading Signals

Most common techniques used for technical analysis of Stochastic Oscillators to generate metals signals are cross overs trading signals, divergence trading signals and overbought oversold levels. Following are the techniques used for generating signals

Metals Trading Crossover Trading Signals

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

Sell signal - %K line crosses below %D line (both lines moving downwards)

50-level Crossover:

Buy signal - when stochastic lines cross above 50 a buy metals trade signal is generated.

Sell signal - when stochastic lines cross below 50 a sell metals trade signal is generated.

Divergence Metal Trading

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

This is used to determine potential metals trend reversal metals trade signals.

Upwards/rising metals trend reversal- identified by a classic bearish divergence

Metals Trend reversal - identified by a classic bearish divergence

Downward/descending metals trend reversal- identified by a classic bullish divergence

Metals Trend reversal - identified by a classic bullish divergence

Overbought/Oversold Levels on Technical Indicator

Stochastic is mainly used to identify potential overbought and oversold conditions in metals price movements.

• Over-bought values greater than 70 level - A sell metals signal occurs when the oscillator rises above 70% and then falls below this level.

Overbought - Values Greater 70

• Oversold values less than 30 level - a buy metals signal is generated when the oscillator goes below 30% and then rises above this level.

Oversold - Values Less Than 30

Trades are generated when Stochastic Oscillator crosses these levels. However, overbought/oversold levels are prone to whipsaws especially when the metals market is trending upwards or downwards.