Especially over the last decades the stochastic oscillator has become an important tool to many traders. If you follow a trend based strategy too, you should take some time to familiarize yourself with the stochastic oscillator.

By comparing the current closing price of an asset to its trading range, the stochastic oscillator attempts to predict turning points in price movements.

The logic behind this idea is simple: Every trend rises or falls with a certain speed. The trading range rises or falls with the trend. In an uptrend, closing prices are usually closer to the upper end of the trading range.

In a downtrend, closing prices are usually closer to the bottom end of the trading range. Sometimes, however, prices move outside this trading range. Most of the time the market is not able to sustain the accelerated movement, and prices will eventually move back into the trading range.

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The stochastic oscillator can help you find such events and profit from the impending turnaround. The result will be converted into a percent value and is plotted into the diagram. A value of 0 means that the current closing price is at the absolute low end of the trading range, a value of means it is at the absolute top end.

A value over 80 is considered significantly high, and a value below 20 is considered significantly low. Which version you choose for your trading should depend on your risk tolerance. Risk-averse traders will be better off with the slow stochastic while more risk-tolerant traders should use the fast stochastics. While the stochastic oscillator was originally designed to be used with daily and weekly charts, it can deliver just as good results when used with intraday charts.

Most commonly, the stochastic oscillator is used over a time period of 14 periods. You can see such an event in the picture above. While prices have reached a double top, the stochastic oscillator has a significantly lower value during the development of the second top. This is considered a bearish divergence and can be used to invest in falling prices.

This adjustment is supposed to generate more refined signals. As you can see in the picture, both techniques are valid. Which one you should use highly depends on how you want to trade the signal. This website is independent of binary brokers featured on it. Before trading with any of the brokers, potential clients should ensure they understand the risks and verify that the broker is licensed.

The website does not provide investment services or personal recommendations to clients to trade binary options. The potential client should not engage in any investment directly or indirectly in financial instruments unless s he knows and fully understands the risks involved for each of the financial instruments promoted in the website.

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