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What makes it stand out from other indicators is that Stochastic is not based on asset’s volume or price – it takes into consideration the speed and momentum of the market. On the chart above, there is an example of the scalping strategy for a long trading range. As we can see, the price hasn’t reached the take profit level but turned around. You should be ready for such situations as sometimes stochastic indicators provide fake signals when trading cfds, pairs, etc.

To implement the technical indicator in the chart, press „Indicators“ and choose „https://www.bigshotrading.info/blog/what-is-the-stochastic-oscillator-and-how-to-use-it/“ from the dropdown list. For beginner traders, check the step-by-step explanation using the example of the Bollinger Bands indicator here. Technically, D isn’t stochastic – it is a derivative from %K. However, it is called stochastic and even has a % symbol. This is how the well-known stochastic oscillator was created.

## Three most effective trading indicators for Forex traders

An asset may not experience trend reversal simply because of the https://www.bigshotrading.info/ values. A bearish divergence forms when price records a higher high, but the stochastic oscillator forms a lower high. This shows less upside momentum and could foreshadow a bearish reversal. Double Smoothed Stochastics – DSS Bressert is an oscillator introduced by William Blau and Walter Bressert shortly after each other in two slightly different versions.

### What is %K and %D in stochastic oscillator?

Stochastic oscillators display two lines: %K, and %D. The %K line compares the lowest low and the highest high of a given period to define a price range, then displays the last closing price as a percentage of this range. The %D line is a moving average of %K.

Divergence-convergence is an indication that the momentum in the market is waning and a reversal may be in the making. The chart below illustrates an example of where a divergence in stochastics, relative to price, forecasts a reversal in the price’s direction. Unlike the RSI, the stochastic oscillator divergence gives a more reliable signal, but its should be double-checked in combination with other indicators. When trading contracts for difference (CFDs) in stocks, a trader may use a combination of the stochastic oscillator and MAs. The Bollinger Bands indicator is the leading tool in this strategy, while the stochastic oscillator will be used as a signal filter.

## Using a Stochastic Oscillator When Trading S&P 500 and U.S. Dollar

Choose the indicator according to your trading strategy. In conclusion, the stochastic indicator is a useful technical analysis tool that can be used to identify overbought and oversold instruments. When combined with other indicators, the stochastic indicator can help a trader identify trend reversals, support and resistance levels, and potential entry and exit points.