Forex Trading Basic

Stochastics Indicator Technical Analysis

Stochastics Indicator Technical Analysis

Stochastic is based on a very simple idea:

During an uptrend, closing prices tend to close near the high of the previous period.

During a downtrend, the sturdy closing tends to close near the low of the previous period.

The indicator represents the position of prices in relation to the range of prices over a period of n previous session. If the indicator is close to 100, the last closing price is close to the maximum period. If the Stochastic is close to 0, the last price is close to the minimum period.

Stochastic consists of two lines; one is represented by% K and% D with the other.

– % K: Fast

– % D: Slow

These lines range from 0 to 100. In the graph of stochastic two horizontal lines on levels 20 and 80, which are called triggers (triggers) are also represented.

Stochastics Indicator Technical Analysis

Stochastic interpretation is as follows:

  • When the lines cross, there is high probability of trend change.
  • When the lines are above 80, there is a risk overbought, and vice versa when the lines are below 20.
  • When the lines are maintained above 80, the upward trend is strong, and vice versa when the lines are below 20.
  • When the lines out of the area above 80, there is a high probability of correction or change to bearish uptrend, and vice versa when lines leave the area below 20.

There are three methods to build the stochastic: 

  • Slow Stochastic (slow)
  • Fast Stochastic (fast)
  • Stochastic “complete” (full)

The most commonly used are the Slow Stochastic and the fast stochastic.

What oscillator use: Stochastic, RSI…? Does not matter!

There are many indicators that the oscillator type, among which certainly stand out above the rest for its wider use RSI, Stochastic or Williams% R . But really, it does not matter much which one is decided to always use that are well defined parameters that characterize it .

In general, all indicators must comply with the market being operated and the timescale in which it works, in order to achieve a number of input signals to sufficiently good market without let him get away too many opportunities, a side, or the indicator becomes a false signal generator.

Therefore, in the case of oscillators we must adjust very well the number of periods based on the oscillator is calculated. As a general rule oscillators usually come set to 14 periods, but may see fit certain occasions for a somewhat faster signal that, without going over, it could end up generating too many false signals, as discussed.

Of course, as with all indicators, signals they provide are by no means definitive, and should always complete the reading of a particular market situation with price action and other indicators.


Please note that: Successful Technical Analysis largely depends on the functionalities of the MT4 Platform provided by your broker. If you are new in forex trading, you might consider reading the article on what is the best trading platform, Introduction to MT4 Platform and MT4 Platform functions. We have used a fully functional MT4 platform provided by HYCM Broker. Read why their MT4 platform has better trading conditions from the HYCM Broker review.


Chapter 5

Technical Analysis in Forex Trading

Lesson 1Types of Technical Analysis Indicators
Lesson 2Forex Trading Trendline Analysis
Lesson 3Forex trading Chart Patterns
Lesson 3.2Double Tops and Double Bottoms
Lesson 3.3Head and Shoulders Pattern
Lesson 3.4Rectangle Chart Patterns
Lesson 3.5Triangle Chart Patterns
Lesson 4Japanese candlestick Trading Strategy
Lesson 4.2Japanese candlestick Trading Strategy Part 2
Lesson 5Support and Resistance Levels
Lesson 6Types of Technical Analysis Indicators
Lesson 6.2moving averages Technical Analysis
Lesson 6.3MACD Indicator Technical Analysis
Lesson 6.4RSI Indicator Technical Analysis
Lesson 6.5Stochastics Indicator Technical Analysis
Lesson 6.6Technical Analysis with Bollinger bands Indicator
Lesson 7Fibonacci Retracement Forex Strategy
Lesson 8Forex Trading Pivot Strategies

Go back to Main Page: Forex Trading for Beginners

About the author

Md Chhali Uddin

Md Chhali Uddin is a Renowned Financial Analyst. He is also involved with as a writer and financial Analyst. He is a brilliant Financial geek with vast experience in every sector of Currency Trading.

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