How to Work and Use the Stochastic Oscillator








Who doesn't know Stochastic?

Among traders, the Stochastic Oscillator is one of the most popular indicators today among traders including beginners because it is easy to understand and use.


The Stochastic Oscillator can give a clue when the best time for traders to buy or sell.

Even though it doesn't offer 100% accuracy, of course you can still improve the accuracy of this indicator by combining it with other indicators, or by combining it with the right capital management (money management).

How to Work and Use the Stochastic Oscillator.

The main use of the Stochastic indicator is to detect overbought and oversold conditions in trading.

On this indicator, you can see that there are two lines in the oscillator which is often referred to as the% K line for blue and the% D line for red which is usually displayed as a dotted line like the image below!










Of course, the colors in this image can later be changed according to taste to make it easier for you to distinguish which is% K and which is% D.


Overbought and Oversold Areas.

Unlike Fibonacci which can only work in downtrend or uptrend positions, Stochastic can also work well when the market is in a sideways state.

Therefore, more accuracy is needed for you to translate buy and sell signals from Stochastic when the market is trending and use them as a reference as long as the signals that appear must be in the same direction as the ongoing trend.

So during a downtrend, you can look for sell signals and vice versa during an uptrend, you can look for buy signals.



A simple way to use this indicator can be seen during an uptrend position, where you can buy and sell during a downtrend.


Finding Divergence with Stochastic.

Apart from functioning as overbought and oversold information, Stochastic can help traders to find bullish and bearish divergences to look for.


Bullish is the price tendency to move up continuously in a certain period of time.

In forex trading, the bull market is often referred to as an uptrend which will occur when the base currency in an eye pair increases in value. Usually, this condition occurs because of the fundamental factors of a country's economy.

Unlike the Bullish, Bearish trend is the price to move down continuously within a certain period of time.

This condition is often called a downtrend which will occur when the base currency in a currency pair weakens in value.

How do you think this pattern works?

You can pay attention to the bullish divergence image below using stochastic on the AUD / USD chart!


The way this pattern works is similar to looking for divergence patterns on the CCI. Bullish divergence will be confirmed when the stochastic rises beyond the 50 level.



Unlike the Bullish Divergence, the bearish divergence seen on the AUD / USD chart above the confirmation of this pattern is when the stochastic drops past the 50 level.

Easy enough, right? The important thing that you need to have in order to use this indicator is to practice more by observing Stochastic.

Don't forget, to test your skills on a demo account to improve your ability to use this indicator.


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