![]() ![]() Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. However, in a strongly trending market the line may remain in this region for some time, so some traders consider the line moving back out of this zone as the confirmation of the end of a trend. When it crosses the 20 line, the product is considered to be oversold. When the stochastic %K line crosses the 80 line, the product is considered to be overbought. These crossovers may appear anywhere on the study, but signals above the lines at 20 and 80 are considered to be stronger. If the red %D line crosses below the white %K line, a possible buy signal is generated. If the white %K line crosses below the red %D line, a possible sell signal is generated. If you want a more conservative equivalent, use the slow stochastic.Īs with moving averages, when the two stochastic lines (%K and %D) cross, a signal is generated. However, its speed means that it should be used in conjunction with other indicators to confirm any signals, such as a stochastic RSI. Any action outside these lines is considered to be particularly significant.Ī stochastic study is useful when monitoring fast markets. These lines are represented by a blue and an orange line. These two lines are shown on a scale of 1 to 100 with key trigger levels shown at 20 and 80. The %K line compares the lowest low and the highest high of a given period to define a price range, then displays the last closing price as a percentage of this range. Stochastic oscillators display two lines: %K, and %D. This momentum indicator works on the basic assumptions that in an uptrend, today’s closing price is likely to be close to the highest recent close price, and that in a downtrend, today’s closing price is likely to be close to the lowest recent close price. This example compares closing price with price range over a given time period to identify overbought and oversold situations. This indicates that a price trend is weakening and may soon reverse. This is when the trendline of the stochastic and the trendline of the price move away from each other. If the indicator moves from below 20 to above 50, it signals the price is moving higher. If the stochastic indicator falls from above 80 to below 50, it indicates that the price is moving lower.Overbought and oversold levels are useful for predicting trend reversals.When the stochastic lines are below 20, it signals that the instrument is oversold. When the stochastic lines are above 80, the indicator signals that the instrument is overbought.Readings below 50 signal that the instrument is trading in the lower portion of the trading range. ![]() Readings above 50 indicate the instrument is trading within the upper portion of the trading range.A reading below 20 signals that the instrument is trading near the bottom of its high-low range. A reading above 80 indicates that the instrument is trading near the top of its high-low range. ![]()
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