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The Stochastic Indicator is an oscillator indicator that oscillates between 0 – 100. This indicator is really easy to use. and you can easily find the indicator at Pocket Option.
What is a Stochastic Oscillator
The Stochastic Oscillator is one of the most popular trading indicator that is useful in predicting the current trend and reversals. This indicator uses two lines %K and %D to analyse the trend.
Why Stochastic Oscillator
- A stochastic Oscillator is a proven indicator that oscillates between 0 -100.
- It compares the price over a given period of time to the closing price of the period.
- This Indicator is highly sensitive to security price fluctuations and can oscillate much more faster than any other Indicator.
- If you combine this indicator with other indicators like RSI or moving average for trend confirmation this indicator can give you very good results.
How to use Stochastic Oscillator
This Indicator uses two lines % D and % K and their intersection points create buy and sell opportunities.
Firstly, change the indicator line colours for better visibility. You can change so by clicking on the pencil icon near the indicator.
Buy at an Oversold level
As I said above you need to focus on the intersection points of the % K and % D line. When the % K line intersects the %D line from the bottom at an oversold level and the % K line is above the % D line. It signals a bullish crossover and you can make a buy trade here.
Buy at an Overbought level
Similarly, When the %D line intersects the % K line from the top with %D line above the %K line at an overbought level. It signals a bearish crossover and you can make a sell trade here.
Dealing with Stochastic Oscillator divergence
When the price and oscillator are moving in the opposite direction we can then say that the price and Stochastic Oscillator is moving in the divergence. Divergence is really an important concept. As you can see above the price is in the falling position but the indicator signals the opposite of the same. Here, we should wait for the price to hit the next support or resistance level.
You can practice the divergence and analyse the indicator in the Pocket Option demo account for better results and share your experience and doubts in the comment section below.