Trade Stock Indices

Analysis of the Stochastic Oscillator

Market tops and bottoms in the stochastic oscillator reveal key details through their shapes and time spans.

The amount of time that indices stays overbought or oversold is an important factor when analyzing the momentum of the market trends.

Trading Market Tops

Narrow market top that does not reach very high above 80 %

Narrow tops signal weak bulls. Bears take control fast. They may drive prices lower with little fight from bulls.

Very high & very wide market tops

A broad market top indicates that the bulls in trading are significantly stronger than the bears, leading to a brief trend reversal (retracement). The retracement on the stochastic oscillator indicator is unlikely to touch the oversold thresholds before the stochastic indicator shifts back towards the overbought levels.

Trading Market Bottoms

A tight narow market bottom that dips only a short range under 20%

The narrow market bottom means that those trying to sell are not strong enough to lower the price, and the buyers have quickly taken over, so the price will likely keep going up for a while. The upward trend will likely continue for some time.

Very wide & deep market bottoms

A significantly broad market bottom suggests pronounced strength among bearish traders, indicating that sellers have firm control over the price: consequently, any subsequent upward retracement is unlikely to persist for long.

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