The indicator is also used to predict future performance of the underlying asset. It was created and introduced by George C. Lane in the s. It follows the speed or the momentum of price.

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As a rule, the momentum changes direction before price. This indicator, therefore, can help traders predict trend reversal points, which is always of great importance in trading.

The Stochastic Oscillator returns the ratio between the last closing price and the high-low range during a set period of time. It is based on the premise that during the uptrends, prices will be above the previous period closing price. Alternatively, during the downtrends, prices will likely be below the previous closing price.

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The oscillator consists of two horizontal and two moving average lines the fast and the slow ones. The fast moving average line by default has a period of 3, while the slow MA has a period of The oscillator ranges from 0 to It should be noted, however, that the decrease in prices is not necessarily a signal to buy, as securities can remain in the oversold zone for quite some time without leaving it. Securities can remain overbought for relatively long periods of time during a strong uptrend. The indicator will appear in the bottom part of the screen, right below the price chart.

There are several ways to determine such cases with the help of the Stochastic Oscillator, of which the following two are the most commonly used. When both slow and fast moving averages are above the overbought level, the trend might be expected to become bearish. The fast MA crossing below the slow MA might be an additional signal of an upcoming downtrend. When both slow and fast moving averages are below the oversold level, the trend might be expected to turn bullish.

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The fast MA crossing above the slow MA might become an additional signal of an upcoming uptrend. When the indicator and the price action start moving in different directions, it might be perceived as a signal of an upcoming trend reversal. Divergences might be both bullish and bearish, as well.



From time to time it can — and will — provide false signals that should not be used as an invitation to open a corresponding position. The Stochastic Oscillator is a useful and interesting technical analysis tool.

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For maximum efficiency, it can be combined with other momentum indicators and trend-following indicators. Caution may be needed when working with the indicator, as different levels do not necessarily correspond to an upcoming trend reversal. NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Necessary cookies are absolutely essential for the website to function properly.

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Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc. Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. Open also 1 minte chart with the same indicators. Buy call. On the 15 min chart the RSI closing below 25 level. Buy Put. On the 15 min chart the RSI closing above 75 level. This strategy is also good for scalping in the forex market on major.

Target price pips depends by currency pair or the Fibonacci levels. Initial stop loss 15 pips. Rainbow Binary. Binary Options Extreme. Three Candles. RSI and Stochastic Binary. Price action Binary Options. RSX Binary Options.