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Tuesday, 6 August 2019

Reading Stochastic Indicators According to 3 Kinds of Functions

the existence of stochastic has been alluded to as an indicator of the oscillator which is able to show the price saturation condition. Formerly, many traders knew how to read the Stochastic indicator only for practical application. But actually, Stochastic consists of various components and has more than one benefit. To uncover it, we will learn 3 ways to read the following Stochastic indicators.

1. How to Read Stochastic Indicators as Overbought Oversold Markers
How to read the Stochastic indicator according to this function is the easiest. Basically, this indicator of George Lane's creation has two extreme levels, namely 80 and 20. Each of these levels acts as an overbought and oversold limit. The Stochastic indicator shows an overbought condition when the chart is above level 80. Meanwhile, the way to read the Stochastic indicator to recognize oversold is to pay attention to a chart that has fallen below level 20

However, it should be noted below that you are not advised to immediately enter trading after successfully practicing how to read the Stochastic indicator above. Often, these signals cannot be relied on when price trends are strong. Therefore, you need to know how to read the next Stochastic indicator to get a more confirmed trading entry.

2. How to Read Stochastic Indicators as Indicator of Trading Entry
The most important component in how to read the Stochastic indicator as a marker of entry trading is the crossing of the signal lines. Unlike RSI which only has one signal line, Stochastic has two dynamic lines, each named% K and% D.

If you are using the MetaTrader 4 platform, the% K Stochastic's default display is the green line, while the% D line appears as a red dashed chart. Apart from appearance, the two lines also have different calculations.

3. How to Read Stochastic Indicators as a Mark of Divergence
Like other oscillators that can function as indicators of momentum, Stochastic is one of the main indicators in the divergence analysis. If MACD divergence uses measurement of up and down bars, then how to read the Stochastic indicator as a divergence indicator relies on peaks (highs) and bottoms (lows) formed from signal lines.
When the Stochastic chart shows a declining high or low, it indicates a weakening of momentum. Conversely, how to read the Stochastic indicator when momentum is strengthening is to pay attention to the increase in high or low of the signal line.

Also Read : 3 Technical Analysis Myths Traders Need to Know

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