Monday, June 8, 2009
Stochastic Oscillator
In my opinion, the Stochastic Oscillator is a funny indicator to use. It is a momentum indicator and it has 2 lines. The main line is called %K. The second one is %D, which is the measurement of the moving average of %K. %D moves more slowly compared to %K and so in an uptrend, %K is above %D and in a downtrend, %D is above %K. When there is a cross, the trend maybe tradable.
How do the linew work? Well, there is a preset price range. And when the current close is near the bottom of the range, the Stochastic Oscillator’s value will be low. But if the close is near the top of the range, the value will be high up.
There will also be 2 levels to take into consideration: The overbought and oversold levels. When the lines are too high up, it means there is an overbought condition and the price would be dropping for a while. So it might be a good time to sell, and vice versa, but not necessarily. There are other factors to take into account as well.
Give the Stochastic Oscillator a shot in your forex trading. At times, it proved to be quite helpful to me to identify the right time to trade.
