STOCHASTIC INDICATOR

The Stochastic oscillator gauges price change between closing periods to predict the trend's continuity. It has two lines, akin to MACD lines, with one being faster. This indicator identifies market overbought or oversold conditions on a scale of 0 to 100.

When Stochastic lines exceed 80, it signals market overbought status. Conversely, when Stochastic lines dip below 20, it suggests potentially oversold conditions.

Generally, we purchase when the market is oversold and sell when it's possibly overbought.

BUY SETUP

For the buy setup,

        ● Wait for the stochastic to show oversold conditions. For this, the indicator will dip below 20.

        ● Wait for the price to make a strong bullish candle and enter a buy position on the next candle.

        ● Place your stop loss slightly below the previous low.

        ● Exit the trade when the trend changes and depending on your risk-reward ratio.

SELL SETUP

For the sell setup,

        ● Wait for the stochastic to get overbought. In this case, the indicator will trade above 80.

        ● Wait for a strong, bearish candle and place your sell entry.

        ● Place your stop loss slightly above the previous high.

        ● Exit the trade when the trend changes and depending on your risk-reward ratio.

CONCLUSION

The stochastic indicator is a simple tool for technical analysis that shows when the price is overbought or oversold. Moreover, it allows traders to spot great trading opportunities at these extreme levels. However, it should be used alongside other indicators for better trading results.

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