Analysis of Stochastic Indicator

A lot of trading information can be gathered from the shapes & duration of the market tops & bottoms of the stochastic oscillator trading indicator.

The amount of time that the price stays overbought or oversold is an important factor when analyzing the strength of the market trends.

Stock Index Market Tops

Narrow market top that doesn't reach very high above 80%

Narrow market tops means that the bulls are weak, and that the Stock Indices bears have overpowered the Indices bulls very quickly. This means that the Stock Indices bears may push the price further down without much resistance from the Stock Indices bulls.

Very high, wide market tops

Wide market tops mean that the Stock Indices bulls are very powerful much more than the Indices bears & the ensuing short term trend reversal (retracement), will be very short lived. The retracement on the stochastic oscillator trading indicator won't even reach the oversold levels before the stochastic oscillator indicator moves back to the overbought levels.

Stock Index Market Bottoms

A narrow market bottom that doesn't reach very deep below 20%

The narrow market bottom means that bears are weak in their attempt to push the price down, Indices bulls have gained control of the price pretty fast so the price movement upwards will continue for a while. And the upwards market trend will continue for a while.

Very wide, deep market bottoms

A wide market bottom is a sign that the Indices bears are very strong and the Indices sellers are in control of the price, therefore any retracement upwards will not stay for long.