A Guide To The Stochastic Oscillator For Maximum Profits
The Stochastic oscillator is meant to girate between 100 and 0. A very low level means emotions have caused people to sell in panic. A very high level means emotions have caused people to become too greedy.
When the Stochastic oscillator is low, look to capitalize on peoples fears by buying. When the Stochastic oscillator is high, look to capitalize on peoples greed by selling. Buying when the Stochastic is low is emotionally challenging because you will be afraid to buy the terrible looking chart. Conversely, selling when the Stochastic is high is emotionally challenging because the market will look great and you'll feel greedy, like you could make even more money.
The Stochastic indicator should not be used by itself but rather with other technical indicators. When a strong uptrend starts, the Stochastic indicator quickly becomes overbought and starts flashing sell signals. In a sudden sell off, the Stochastic indicator becomes oversold and flashes premature buy signals. This indicator works well only if you use it with another trend-following indicator and take only those Stochastic signals that point in the direction of the main trend.
Should a trader wait for the Stochastic indicator to turn up to recognize a buy signal? Should he wait for it to turn down to recognize a sell signal? Not really, because by the time the Stochastic indicator turns, a new move is usually under way. If you are looking for an opportunity to enter, as soon as the Stochastic indicator reaches an extreme you enter.
If the Stochastic has a bullish divergence from the price, go long. If it has a bearish divergence from the price, go short. Bullish and bearish divergences are just a short way of saying that the Stochastic moves in the opposite direction as the price of the stock.
Perhaps the most helpful use of the Stochastic is in that it tells you when you should NOT buy. Do not buy when the Stochastic is high. Do not short when the it is low. Moving averages are better than Stochastics at spotting trends, the MACD is better at spotting reversals. But the Stochastic is the king at telling you when you should not trade. - 23208
When the Stochastic oscillator is low, look to capitalize on peoples fears by buying. When the Stochastic oscillator is high, look to capitalize on peoples greed by selling. Buying when the Stochastic is low is emotionally challenging because you will be afraid to buy the terrible looking chart. Conversely, selling when the Stochastic is high is emotionally challenging because the market will look great and you'll feel greedy, like you could make even more money.
The Stochastic indicator should not be used by itself but rather with other technical indicators. When a strong uptrend starts, the Stochastic indicator quickly becomes overbought and starts flashing sell signals. In a sudden sell off, the Stochastic indicator becomes oversold and flashes premature buy signals. This indicator works well only if you use it with another trend-following indicator and take only those Stochastic signals that point in the direction of the main trend.
Should a trader wait for the Stochastic indicator to turn up to recognize a buy signal? Should he wait for it to turn down to recognize a sell signal? Not really, because by the time the Stochastic indicator turns, a new move is usually under way. If you are looking for an opportunity to enter, as soon as the Stochastic indicator reaches an extreme you enter.
If the Stochastic has a bullish divergence from the price, go long. If it has a bearish divergence from the price, go short. Bullish and bearish divergences are just a short way of saying that the Stochastic moves in the opposite direction as the price of the stock.
Perhaps the most helpful use of the Stochastic is in that it tells you when you should NOT buy. Do not buy when the Stochastic is high. Do not short when the it is low. Moving averages are better than Stochastics at spotting trends, the MACD is better at spotting reversals. But the Stochastic is the king at telling you when you should not trade. - 23208
About the Author:
I hope this lesson helps you understand how to use the Stochastic Oscillator better and make a lot of money. For more trading tips on the Stochastic go to stochastic oscillator
posted by X - Men @ 3:52 AM
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