Millionaire Trader Teaches You How To Use The Stochastic Oscillator
The Stochastic oscillator will move between 0 and 100. Low readings mean an oversold market while high readings mean an overbought market. Oversold means the market over reacted on the sell off and is ready to bounce upward. Overbought means the market over reacted on the buying and is ready to turn down.
Buy when the Stochastic oscillator is low. Sell when the Stochastic oscillator is high. The idea is to take advantage of other traders when they are emotional: either fearful or greedy. Selling when the Stochastic is high is difficult because you'll want to hang on longer: greed. Buying when the Stochastic is low is difficult because you'll want to sit on the sidelines longer until the chart looks better.
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 you wait for the Stochastic indicator to turn up before buying? Should you wait for it to turn down before selling? No. If you wait until the Stochastic turns, you'll miss out on making a lot of money. What you are trying to do is enter as soon as the Stochastic indicator reaches an extreme. View very low or very high Stochastic readings as a measure of the emotion in the crowd that is trading your stock. The more the emotion, the better. It is easier to make money from emotional traders than it is from calm, rational traders.
If you see a positive divergence between the Stochastic and the price of a stock, go long. A positive divergence is when the stock price drops to a new low, but the Stochastic indicator makes only a slight low and does not break to a new low. Do the opposite on the downside. If you see a negative divergence between the Stochastic and the price of a stock, go short. A negative divergence is when prices rise to a new high, but the indicator goes down or barely rises at all.
You should not buy a stock when the Stochastic is high. Conversely, you should not sell a stock when the Stochastic is low. This is probably the most accurate way to use the Stochastics. Reverse your thinking and look at it as telling you when NOT to trade a stock. Indeed, moving averages are superior to the Stochastic at picking up on trends, the ADX is better at catching entry and exit points, but the Stochastic is the best at telling you when you should NOT trade a stock. - 23223
Buy when the Stochastic oscillator is low. Sell when the Stochastic oscillator is high. The idea is to take advantage of other traders when they are emotional: either fearful or greedy. Selling when the Stochastic is high is difficult because you'll want to hang on longer: greed. Buying when the Stochastic is low is difficult because you'll want to sit on the sidelines longer until the chart looks better.
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 you wait for the Stochastic indicator to turn up before buying? Should you wait for it to turn down before selling? No. If you wait until the Stochastic turns, you'll miss out on making a lot of money. What you are trying to do is enter as soon as the Stochastic indicator reaches an extreme. View very low or very high Stochastic readings as a measure of the emotion in the crowd that is trading your stock. The more the emotion, the better. It is easier to make money from emotional traders than it is from calm, rational traders.
If you see a positive divergence between the Stochastic and the price of a stock, go long. A positive divergence is when the stock price drops to a new low, but the Stochastic indicator makes only a slight low and does not break to a new low. Do the opposite on the downside. If you see a negative divergence between the Stochastic and the price of a stock, go short. A negative divergence is when prices rise to a new high, but the indicator goes down or barely rises at all.
You should not buy a stock when the Stochastic is high. Conversely, you should not sell a stock when the Stochastic is low. This is probably the most accurate way to use the Stochastics. Reverse your thinking and look at it as telling you when NOT to trade a stock. Indeed, moving averages are superior to the Stochastic at picking up on trends, the ADX is better at catching entry and exit points, but the Stochastic is the best at telling you when you should NOT trade a stock. - 23223
About the Author:
I hope this article teaches you how to use the Stochastic Oscillator better and become rich. For more expert trading advice on the Stochastic go to stochastic oscillator
posted by X - Men @ 12:26 AM
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