Forex Technical Analysis Articles - Ranging Indicators / Oscillators - Closing Thoughts

Technical Analysis

1. Introduction

2. Construction

3. Overbought and Oversold Levels

4. Shapes

5. Crossovers

6. Divergence

7. RSI and MACD-Line

8. RSI and MACD-Line Part II

9. Conclusion

As mentioned before, Stochastic is one of most useful indicators used by traders. Most professional analyses will mention a Stochastic reading. As was demonstrated with the examples for Stochastic divergences, they can be a very handy tool to an intraday trader. We covered several interpetations of the Stochastic indicator, and summarize them below. It should be noted that it is better to use the signals from Stochastic when coupled with information from other technical indicators.

Stochastic Summary
The Stochastic indicator is an oscillator that measures momentum. It is based on the idea that during an uptrend prices tend to close at the high of the candle, and during a downtrend at the low of the candle.
Trend Identification
Interpretation	Description	Results
1. Trend	Stochastic heading up Stochastic heading down	Price increasing Price decreasing
2. Oscillation	Stochastic reaches 80% level Stochastic reaches 20% level	Overbought Oversold
3. Tops	Thin and Shallow Broad and Deep	Contraction will be strong Contraction will be weak
4. Bottoms	Thin and Shallow Broad and Deep	Rally will be strong Rally will be weak
Signals
1. Oscillation	Stochastic crosses above, then below the 80% level. Stochastic crosses below, then above the 20% level.	Sell setup or signal Buy setup or signal
2. Negative Divergence	Prices are setting higher highs while Stochastic is setting lower highs.	Sell setup or signal
3. Positive Divergence	Price level setting lower lows while Stochastic is setting higher lows.	Buy setup or signal
4. Crossovers	If %K line crosses below %D.	Sell setup or signal
4. Crossovers	If %K line crosses above %D.	Buy setup or signal

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