Introduction:
Stochastic oscillator was developed by George Lane. He is technically an indicator, which is based on the ratio of the current closing price to the minimum / maximum for a set period. Standard stochastic oscillator has two lines.
Description of indicator:
Stochastic oscillator was invented based on the property price: if the price rises, the closing price is closer to the upper boundary of the trading range over a given time interval, and vice versa, the closing price for the descent toward the lower end of the trading range over a given time interval. That's just the indicator measures the location and price in relation to the upper and lower boundaries of the trading range over a given time interval.
The Stochastic Oscillator is in two lines -% K and% D.
The indicator scale is broken, if the closing price wakes close to the upper boundary of the trading range that the indicator line will be close to the 100, respectively, if the closing price wakes close to the lower boundary of the trading range, the indicator line will be close to the level of 0.
This indicator, as though all oscillators work well in non-trending market conditions. The most popular way to use it, is to set the control levels at 80 and 20. So here's a simple way exceeding the indicator mark of 80 represents an overbought market, and the reading is below 20 indicate oversold roar.
As the creator of George Lane said, overcoming the mark 80, it is a signal to sell, and if the price is below 20, it is a buy signal. However, the price for a long time may increase further, breaking the line 80, or for a long time to fall after the turn 20. Conclusion, the probability of truthfulness of the data signals 50/50 and it is better not to use them, it's too risky, which could lead to loss of capital.
The use of the stochastic oscillator:
The fastest and most frequent signals are crossing lines% K and% D, but this is their greatest disadvantage, for how many give a lot of false signals. These signals are as follows: when the% K line% D prevents the bottom up, this is a buy signal, and if the top down, it is a signal to sell (these signals are very similar to the signals of the intersection of two moving averages)
As in many oscillators, the most reliable and proven signal is divergence. If the schedule a new high above the previous one, and the display a new high following the previous one, it is a signal of the impending reversal chart. So with the minimum if a new low below the previous and the new low in the display above the previous one, it is a signal of the impending reversal chart.
Disadvantages:
This indicator responds instantly to changes in price, and therefore gives a lot of false signals in the trend of the market.
Description Forex indicators .