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Stochastic – Ways To Apply The Stochastic Indicator

PostDateIcon March 6th, 2010

The stochastic forex indicator is a sort of oscillator employed by many traders in their forex trading analysis. Momentum is the most important use of this indicator.

Traders in general use three types of stochastic indicators. The full stochastic, slow stochastic and the fast stochastic. They all work in a very comparable way. Usually however, the type of stochastic referred to in discussions is the slow stochastic. The stochastic indicator works on the premise that prices for a financial instrument tend to close in the upper trading range when that instrument is in an up trend. On the other hand, prices tend to close in the lower trading range when the instrument is in a down trend. This signals that momentum is still strong in that given financial instrument. There are two main indicator lines the stochastic tool. They are the %D along with %K line. This is an additional oscillating banded indicator just like the RSI forex indicator. A range of 0 to 100 is where the two %k and %D lines range.

Opposite extremes are represented by the 20 and the 80 line. As mentioned earlier, this tool can also be applied to identify oversold as well as overbought circumstances. Making it similar to the RSI indicator yet again. When the markets are trading higher than 80, the market is overbought. If the indicator breaches the 20 line, this is a indication that the instrument is oversold.

Forex traders also apply the stochastic oscillator to determine if market momentum is waning. This is indicated when the indicator is trending in the opposite direction of price. Cross over strategies are also familiar with stochastics. It involves a cross of the faster %K over or above the slower %D line. Should it cross above the %D line, this is an indication that it may be a good time to buy. If it crosses below the %D line, the reverse is indicated.

It should be noted that like moving averages and the relative strength index, the stochastic indicator does not perform that well when the markets are side trending. It is used as a confirmation indicator in conjunction with most other tools.

Should you want a detailed review on Stochastic and a broad assortment of recognizable Forex indicators can be located on the authors forex trading online portal.

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What Are The Best Forex Robots?
Watch out. The only thing that some "autopilot" forex software products will do for you is... analyze the market. Sure, that's great because when a computer does all the analytical work for you, you don't have to sit in front of a screen looking at charts and candlesticks for hours on end.

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Why I don't like these EA's

PipsMiner. I first used the wrong settings and as a result lost money. Then I corrected my mistake and entered their recommended settings but still lost money with PipsMiner SE version. Here endeth my very brief PipsMiner user review.

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