What Is the Stochastic Indicator?

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What Is the Stochastic Indicator?

Stochastic Indicator is also a momentum indicator used by Nemours amount of traders. It’s the same as MACD (Moving Average Convergence Divergence) indicator but has no histogram and some bunch of other parameters also. There is a parameter called %K or person K with a default value of 14 and a %D or person D with a default value of 3. There is also a parameter for Smooth which value is by default is also 3.

Calculation

What Is the Stochastic Indicator? 1

How to use it?

Here also, this indicator has an overbought and oversold condition at 80 and 20 respectively. Traders use the crossover of %D and %K to buy/ sell. If %D crosses over %K above the 80 levels then it’s a sell signal and if %K crossover %d below 20 levels then it’s a buy call. Using standalone is not a good strategy for trading because indicators provide many false signals throughout the sessions.

Live example 

Bullish

Bearish

What Is the Stochastic Indicator? 2

Although it’s a leading indicator we can’t rely on it, as you can see it produces many false signals.

Note: Always Trade indicators wisely with proper risk management else your trading funds will always at high risk.

Also Read: What is Moving Average Convergence Divergence (MACD)?