STOCHASTIC INDICATOR

STRATEGY GUIDE

WHAT IS A STOCHASTIC OSCILLATOR?

• A leading momentum indicator that measures the relationship between the closing price
and the price’s range over a set period of time.
• Can show when an asset is overbought or oversold.
• Should be used in conjunction with other indicators or price action.

HOW DOES IT WORK?

• Uses 2 lines: a fast line (%K) and a slow line (%D).
• The indicator ranges between 0 and 100. Below the dashed 20 line can indicate oversold,
and above the dashed 80 line can indicate overbought.
• Buy and sell signals are created when the %K line crosses the %D line.
• Crossing lines could indicate a trend reversal as momentum shifts.

FORMULA
(No need to know this as your trading platform will do the calculations)

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The information provided within this PDF is for educational purposes only.
The information provided within this PDF is for educational purposes only.
 STOCHASTIC OSCILLATOR STRATEGY
EXAMPLES

1. Using the overbought line and oversold line for trend reversal.
• Buy when %K (blue line) crosses from oversold above the 20 line.
• Sell when %K (blue line) crosses from overbought below the 80 line.

2. Using line crossovers in a ranging market.

• Buy when %K (blue line) crosses above %D (red line).

• Sell when %K (blue line) crosses below %D (red line).

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The information provided within this PDF is for educational purposes only.
The information provided within this PDF is for educational purposes only.
 STOCHASTIC OSCILLATOR STRATEGY
EXAMPLES

3. Enter a trend on a pullback.

• Use the 15 minute chart to determine entries & exits.
• When %K (blue) crosses up and then down the 80 line it could indicate a sell trade.

• Use higher time frames to determine the direction of the trend.

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The information provided within this PDF is for educational purposes only.
The information provided within this PDF is for educational purposes only.