Mathematical Method of Technical Analysis : Lesson 5

Stochastic operates on certain periods and indicates the position of the current price in the comparison to the closing price to the range of its prices over a certain period of time. Technical analysis. Part 3. Mathematical methods Lesson 5. Stochastic Oscillator In the last lessons in the framework of mathematical methods of the technical analysis, we’ve started to learn trend-following indicators or oscillators, which help traders to see further change of current price trend. Today we will continue to talk about this type of indicators and will study Stochastic Oscillator (or just Stochastic). Video tutorial: This indicator also operates on certain periods and indicates the position of the current price in the comparison to the closing price to the range of its prices over a certain period of time. How is Stochastic calculated The idea behind this indicator is that in an upward trend the price should close near the highs of the trading range and in a downward trend the price should close near the lows of the trading range. This indicator reflects market dynamics, compares current closing price to the highs and lows over a certain period of time. Like any ratio indicator, Stochastic Oscillator is expressed in percentages and is in a small chart below the price. Stochastic is constructed by two lines:       • %K — main (or standard);       • %D — signal (or slow). Signal line — is simply a n-period Moving Average of the %K. Interpretation of Stochastic Oscillator The same as RSI, it reflects the overbought and oversold levels, i.e. periods of a unjustifiably high demand and supply. Boundaries of overbought level above 70% and oversold level below 30%. Overbought and oversold levels and two indicator lines provides traders trading signals. Buy Signal When Stochastic is below the 30% oversold line and the %K line crosses over the %D line, it is a signal for the further price rise and for opening long positions (to buy). Sell Signal When Stochastic is above the 70% overbought line and the %K line crosses below the %D line, it is a signal for the price declining and for opening short positions. How to add Stochastic Oscillator to a chart on MetaTrader 4 In «Navigator» find «Indicators» and then «Oscillators», there you will find Stochastic Oscillator. Setting the common parameters:       ― period for two lines;       ― price field (open, close, low, high);       ― moving average method. Add this indicator on the chart and study its behavior. Constant practice is a formula for successful usage of this analytical tool. In the next lesson we will start to study more complicated indicators, sometimes they are called trading systems. The first one and complex «stop and reverse» parabolic system refers to the trend-following mathematical methods of market analysis. Customer support - 400-666-0880 You have received this letter because you subscribed on “Technical analysis. Part 3. Mathematical methods” course on the web-site traders academy. In order to prevent emails from traders.academy to be putted in spam, please add support@traders.academy to address book. Risk Disclosure    Privacy Policy    Unsubscribe Use of information: in case of full or partial use of materials from the web-site, it is necessary to provide the link to traders.academy as the source of information. In case of use of the materials in the Internet hyperlink to traders academy web-site. Automatic import of materials and information from this site is prohibited.