Stochastic Indicator Overbought & Over-sold Levels

Stochastic oscillator trading is used to look for overbought/oversold trading signals. Overbought levels are above 80% level & over-sold levels are below 20% level.

The key is to not only look at Stochastic oscillator indicator when the %K or %D lines touch or cross overbought/over-sold, but also when they cross over and back through these levels.

Just as with other trading momentum indicators such as RSI indicator 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 upward trend (overbought) or strong downward trend (oversold).

When the stochastic lines cross back below or above these overbought and over-sold levels it is usually a good indication of an upcoming trend reversal.

A trader can look for further signals to make the over-sold or overbought levels more reliable if:

Buy Trading Signal Using Stochastic Oscillator Technical Indicator Over-sold Levels

• Before 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 Oscillator Indicator to move back above 5% as a sign that the selling pressure is easing.

The Buy signal is confirmed when the stochastic oscillator trading moves above oversold, then after a while returns to over-sold but this time moves up immediately without staying at the oversold.

Buy Trade Signal Using Stochastic Oscillator Indicator Over-sold Levels

Sell Trade Signal Using Stochastic Oscillator Indicator Overbought Levels

• Before Selling, the %K & %D lines turn down 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 to move below 95% as a sign that the buying pressure is easing.
• The sell stock signal is confirmed when the stochastic moves below overbought, then after a while returns to over-bought but this times moves down immediately without staying at the overbought.

Sell Trading Signal Using Stochastic Oscillator Indicator Overbought Levels

Looking at different chart timeframes when using oversold and overbought levels can also help to determine the correct entry strategy when opening a trade.

The main theory is to trade with the trading market trend. Always double check the trading signals with the longer term stochastic oscillators to confirm trading signals on the shorter chart time frame periods.

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