Analysis of Stochastic Oscillator

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

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

Trading Market Tops

Narrow market top that does not reach very high above 80 %

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

Very high, wide market tops

Wide market top mean that the indices trading bulls are very powerful much more than the indices trading bears and the ensuing short term trend reversal (retracement), will be very short lived. Retracement on the stochastic oscillator technical indicator will not even reach the oversold areas before the stochastic oscillator technical indicator moves back to the overbought levels.

Trading Market Bottoms

A narrow market bottom that does not reach very deep below 20%

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

Very wide, deep market bottoms

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