Today we’ll be covering the Stochastic indicator and we will explain it for beginners. In trading, this indicator (also called a Stochastic oscillator) is used to generate overbought and oversold signals. When applying a Stochastic indicator strategy, you will need the closing price of an asset, as well as its prices over a given time period.
And that time period is what you will want to focus on in the Stochastic indicator settings, as that is what will define the oscillator’s sensitivity to market momentum. The Stochastic trading indicator is always in the range between 0 and 100, where readings above 80 usually show you that an asset is overbought and readings below 20 tell you it is oversold.
However, these aren’t always good for determining trend reversals, and that’s where Stochastic indicator divergence from trending price action should be considered. Most charting tools have the Stochastic oscillator included in them, which makes applying a Stochastic strategy to your trading fairly easily.
Watch the full video to see the Stochastic indicator explained in detail and for our advice on how you can integrate this indicator in your own trading strategy. And if you’re already using a Stochastic trading strategy, let us know how it’s working for you in the comments.
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