Easy Trade With Stochastic Indicator

Stochastic indicator is a Forex trading tool made by George C Lane in 1950. As its name, stochastic value is between 0 and 100 (oscillator). Forex Stochastic indicator oscillator is used to identify closing position of range transaction in the period of time. Basically Stochastic Forex indicator is used to calculate the relative strength of highest and lowest market price in the certain period of time.

Stochastic indicator consists of 2 lines indicator, %K and %D line. The main of the stochastic indicator is the %K itself, and %D actually is the SMA Simple moving average of %K. In other words, %D is the trend indicator of the %K.

When you see Stochastic indicator moves between 0 and 100, we can assume this indicator is more like Relative Strength Index indicator. Stochastic indicator use lowest, highest, and closing price in it calculation. The default setting of the %K is 13 and for %D is 3. George C Lane use 3 period to increase the sensitivity of the Stochastic indicator. But can we use other number for %D setting? of course we can.

OK, now take a look at this picture. In this chart I use metatrader trading chart. Do not confuse with the look of my trading chart. The red candlestick means bearish candlestick and the green candlestick meed bullish candlestick. An expert trader must have ability to read various trading charts. There are so many Forex online providers that give trading chart online for free. If you search in Google then you will find so many Forex online services who have so many various trading charts. But I more like Metatrader for my trading tool because this trading platform software has so many features.

Fast Stochastic, Slow stochastic and Full Stochastic oscillator

Stochastic indicator is an oscillator indicator, the good thing and also the bad thing from stochastic indicator is its sensitivity. Because of its sensitivity we can receive so many trading signals and false signals also. To reduce the sensitivity of stochastic indicator we need %D line to smooth it. We also can smooth the %K before we use it for %D line. This smoothing process produces 3 variants of stochastic Forex indicator, Fast Stochastic, Slow stochastic and Full Stochastic oscillator.