Trade Stock Indices

Stochastic Indicator Over-bought & Over-sold Levels

Stochastic oscillator finds overbought or oversold spots. Overbought tops 80%, oversold dips under 20%.

When analyzing the stochastic oscillator, monitor not only instances when %K or %D lines touch overbought/oversold levels but also when they consistently cross these thresholds.

Just as with other trading momentum indicators such as RSI the Stochastic oscillator indicator can stay inside the overbought & oversold levels for some time. When this trading stochastic oscillator stays within these levels for a long time it indicates strong upwards trend (overbought) or strong downward trend (oversold).

Stochastic lines crossing back over overbought or oversold levels signal a trend reversal. It often points to a market shift.

Traders can seek extra signals to strengthen overbought or oversold readings in these cases.

Buy Trading Signal Using Stochastic Indicator Technical Indicator Oversold Levels

  • Before and Prior to Buying, the %K and %D lines turn upwards from below 5%.
  • A reading that is floating near 5% means that indices trading bears are in control and there is selling of indices. A trader should wait for the Stochastic Indicator to move back above 5% as a sign that the selling pressure is easing.

A buy signal is confirmed when the stochastic oscillator rises from oversold levels, briefly revisits oversold territory, and immediately rebounds upward without prolonged stagnation.

Buy Trading Signal Using Stochastics Oscillator Technical Oversold Levels

Buy Signal Using Stochastic Indicator Over-sold Levels

Sell Signal Using Stochastics Indicator Over-bought Levels

  • Before and Prior to Selling, the %K & %D lines turn downward from above 95 %.
  • A reading that is floating above 95% means that indices trading bulls are in control and there is buying of indices. A trader should wait for the Stochastic indicator to move below 95% as a sign that the buying pressure is easing.
  • The sell stock signal gets to be confirmed when the stochastic indicator goes below overbought, then after a while returns to over-bought but this time moves down immediately without staying at the over-bought.

Sell Trading Signal Using Stochastic Overbought Levels

Sell Trading Signal Using Stochastic Indicator Over-bought Levels

When analyzing various chart time frames, utilizing oversold and overbought levels can assist in identifying the appropriate entry strategy for initiating a trade.

Stick to the market's main flow in trades. Check short signals against long-term stochastics for sure bets.

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