Thursday, July 15, 2010

Stochastic Oscillator

Stochastic Oscillator,compares current closing price with its price range for a certain time period. The Indicator is indicated as two lines. The main line is called %K. The second line, called %D, is a Moving Average of %K. The %K line is usually indicated as a firm line and the %D line is usually displayed as a dotted graph.


- Buy when the Oscillator (either %K or %D) falls below a certain level (as a rule 20) and then rises above this level. Sell when the Oscillator rises above a certain level (as a rule 80) and then falls below this level;
- Buy when the %K line rises above the %D line. Sell if the %K line is below the %D line;
- Monitor divergences. For example: prices form a series of new highs and the Stochastic Oscillator is failing to surpass its previous highs. 

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