Stochastic Oscillator Technical Analysis and Stochastic Oscillator Signals

Developed by George C. Lane

The Stochastic Oscillator is a momentum indicator - it shows the relation between the current closing price relative to the high and 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 silver trend market the price closes near the high of the 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 signal

3 Types of Stochastics Silver Oscillators: Fast, Slow and Full Stochastics

There are 3 types are: fast, slow and full Stochastic. The 3 indicators look at a given chart period for examples the 14-day period, and measures how the 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 upwards silver trend, price tends to close at the high of the candlestick.
• In a downward trend, price tends to close at the low of the candlestick.

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

Trading Analysis & Generating Signals

Most common techniques used for analysis of the Stochastic Oscillators to generate silver signals are cross overs signals, divergence trading signals & over bought oversold areas. Following are the techniques used for generating signals

XAGUSD Cross Over Signals

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

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

50-level Crossover:

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

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

Divergence Trading

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

This is used to determine potential silver trend reversal silver signals.

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

Silver Trend reversal - identified by a classic bearish divergence

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

Silver Trend reversal - identified by a classic bullish divergence

Overbought/Oversold Levels on Indicator

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

• Overbought values greater than 70 level - A sell silver 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 silver 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 trading market is trending upward or downward.