STOCHASTIC INDICATOR - lstinvesting.com

STOCHASTIC INDICATOR


The Stochastic oscillator, also called momentum, was created in the late 1950s by George Lane, being another graphic indicator that helps us identify the terminal phases of a trend.

The Stochastic indicator measures the price momentum. If we study the movement of an ascending rocket we will notice that before it lands, it must slow down. Momentum (the speed of the impulse) always changes its direction before the price. - explains Lane.


Although the indicator was initially designed to monitor the impulse / momentum speed, it is currently used to identify overbought and oversold areas.

Graphically, the indicator assumes a faster and a slower moving average.

 


How do we use Stochastic indicator

The Stochastic tells us whether the market is dominated by buyers or sellers.
Its value varies between 1 and 100.

  • If its value is above level 80, then the market is dominated by buyers.
  • If its value is below level 20, then the market is dominated by sellers.
     

 

​​! Remember
We buy during the oversold period (the offer is higher, so the prices are lower) and we sell during the overbought period (the demand is higher, so the price is higher).