A Guide To The Stochastic Oscillator For Maximum Profits
The Stochastic oscillator is designed to oscillate between 0 and 100. Low levels mark oversold markets, and high levels mark overbought markets. Overbought means too high, ready to turn down. Oversold means too low, ready to turn up.
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.
New traders mess up by trying to over simplify trading. They pick just one indicator and use it because it's all they can conceptually understand. Don't do this. The Stochastic indicator needs to be used with other indicators. Why? Consider this. In a sudden buying frenzy, the Stochastic becomes overbought too quickly and will give a premature sell signal. In sudden panic selling, the Stochastic becomes oversold too quickly and will give a premature buy signal. Always use the Stochastic with other indicators.
What you need to do is to enter a position when the Stochastic indicator is at an extreme. If you try and wait until the Stochastic indicator turns, you'll miss too much of the move. Think of the extremes of the Stochastic as telling you how much emotion is in the market. The more the emotion, the better you can take money away from other traders.
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. - 23226
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.
New traders mess up by trying to over simplify trading. They pick just one indicator and use it because it's all they can conceptually understand. Don't do this. The Stochastic indicator needs to be used with other indicators. Why? Consider this. In a sudden buying frenzy, the Stochastic becomes overbought too quickly and will give a premature sell signal. In sudden panic selling, the Stochastic becomes oversold too quickly and will give a premature buy signal. Always use the Stochastic with other indicators.
What you need to do is to enter a position when the Stochastic indicator is at an extreme. If you try and wait until the Stochastic indicator turns, you'll miss too much of the move. Think of the extremes of the Stochastic as telling you how much emotion is in the market. The more the emotion, the better you can take money away from other traders.
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. - 23226
About the Author:
May this lesson teaches you 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 @ 3:03 AM
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