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Forex For Beginners

Stochastic

The Stochastic is an indicator that shows the location of the current close price relates to the high/low range over a set time periods. Stochastic is uses to indicate overbought and oversold conditions. When the moving average lines are above 75, it means that the market is overbought and we should look to sell. When the moving average lines are below 25, it means that the market is oversold and we should look to buy.

However, the reading above 75 mustn't necessarily bearish or a reading below 25 bullish. The market can continue to rise after the Stochastic has reached 75 and continue to fall after the Stochastic has reached 25.

One of the most reliable signals is to wait for a fast moving averages to cross the slow moving averages above the 75 reading to confirm the sell signal. For a buy signal, wait for the fast moving averages to cross the fast below the 25 reading.