Stochastic Indicator Over-bought & Over-sold Levels

Stochastic oscillator trading is used to look for overbought/oversold signals. Over-bought levels are above 80% level & oversold 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 technical levels.

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).

When stochastic lines cross back below or above these overbought & over-sold levels it's mostly a good signal indication of an upcoming market trend reversal.

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

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.

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

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 Indicator Over-bought Levels

Looking at different chart time frames when using oversold and over-bought levels can also help to determine the right entry strategy when opening a trade.

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

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