How to Trade with Stochastic Indicator

Many Forex traders like stochastic indicator because of its simplicity, this indicator already familiar among traders. This indicator assists you to determine in trading when the market price is going to reverse. Traders use stochastic indicator in order to identifying trading levels for open trading positions. All we have to do is only waiting for overbought or oversold trading signals. These trading signals also can be used for exit points.

This indicator has 2 lines that trade in 3 areas, oversold at below area, overbought is at above and neutral area. Usually traders use 80 to 100 levels to determine overbought area and 00 to 20 levels to identify oversold area.

Let's take a look at trading chart below :

1. The stochastic indicator is in overbought area
2. The stochastic indicator is in oversold area
3. The stochastic indicator is in neutral area

How to trade with Stochastic indicator
1. When the stochastic lines indicator crossed below level 20 then we can assume that the market changed its direction from bearish into bullish. In this situation we can open buy trading position.
2. When the stochastic indicator lines crossed above level 80 then we can assume that the market changed its direction from bullish into bearish. In this situation we can open sell trading position.

Another way to trade with stochastic indicator is to analyze where the stochastic indicator move under 20 level and then reverse, so we can consider this situation is in bullish reversal signal and we can open buy trading position. And when the stochastic indicator move above 80 level and then reverse, so we can consider this situation is in bearish reversal signal and we can open sell trading position.

Some points from stochastic indicator:
- We can use this stochastic indicator as reversal signals.
- Stochastic moves between 3 areas, oversold area, neutral area, and overbought area.
- Stochastic Oscillator. In fact, the indicator shows the current closing price discrepancy. The indicator is built from two lines:% K and %D.
- Learn how to use the Stochastic Oscillator to determine overbought and oversold markets and finding trend direction
- The stochastic indicator lines Crossing above the level of 80% and 20% below the level considered to be the strongest signals.
- There are 3 types of Stochastic indicator: fast, slow and complete. The Fast Stochastic Oscillator consists of lines of% K and% D.
- HOW to USE the stochastic indicator Forex trading, how is calculated, that is, how to use it.