TAFX USING THE STOCHASTIC OSCILLATOR 12th February 2015
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Agenda Introduction to Technical Indicators Introduction to the Stochastic Oscillator Using the Oscillator Limitations
Agenda Introduction to Technical Indicators Introduction to the Stochastic Oscillator Using the Oscillator Limitations
Introduction to Indicators What are they? Statistics used to: Forecast stock trends and price patterns Who uses them? Short-term traders Technical Indicators Long-term investors Entry/Exit Why use them? To provide confirmation for entry and exit points
Agenda Introduction to Technical Indicators Introduction to the Stochastic Oscillator Using the Stochastic Oscillator Limitations
Introduction to the Stochastic Oscillator What is it? Oscillator which follows momentum Momentum: Rate of rise/fall in prices When to use it? Best used in a market: Trending sideways With high volatility Why use it? It is a sensitive oscillator
Introduction to the Stochastic Oscillator Stochastic Oscillator Consists of: %K Line Shows you the location of the close price in a specified time period %D Line Moving average of %K within a time period (John Murphy)
Agenda Introduction to Technical Indicators Introduction to the Stochastic Oscillator Using the Oscillator Limitations
Using the Stochastic Oscillator Three ways to utilize the oscillator Make use of overbought/oversold region Look out for crossovers between %K and %D lines Make use of divergences Signals which satisfy all three conditions are the strongest
Using the Stochastic Oscillator Using Overbought and Oversold Regions
Using the Stochastic Oscillator Using the Overbought and Oversold Region Green area above 80 is considered Overbought Red area below 20 is considered Oversold
Using the Stochastic Oscillator Using the Overbought and Oversold Region Green area above 80 is considered Overbought High probability of price Red area below 20 is considered Oversold High probability of price
Using the Stochastic Oscillator Using Crossovers
Using the Stochastic Oscillator Using Crossovers between the %K and %D Lines 1. Identify crossover: A crossover is when: %K line crosses the %D line If the %K moves ABOVE the %D line, it s a BUY signal If %K moves BELOW the %D line, it s a SELL signal
Using the Stochastic Oscillator Using Crossovers between the %K and %D Lines 2. Take note if crossover is near/close to Overbought or Oversold region Crossovers near the Overbought and Oversold regions are strong signals
Using the Stochastic Oscillator Using Divergences
Using the Stochastic Oscillator Using Divergences What is a Divergence? When Price moves in a direction opposite of the Stochastic Oscillator
Agenda Introduction to Technical Indicators Introduction to the Stochastic Oscillator Using the Oscillator Limitations
Limitations False Signals Do not use the Stochastic Oscillator alone Instead, combine with other methods of analysis
Additional Information Stochastic Oscillator Strategies: Stochastic Pop and Drop StockCharts.com» ChartSchool» Trading Strategies and Models» Stochastic Pop and Drop In depth information on Stochastic Oscillator: Go to Stockcharts.com» ChartSchool» Technical Indicators and Overlays» Stochastic Oscillator