Swing Trading Indicator: 6. Stochastic Oscillator

Stochastic refers to the category of oscillators and signals about price reversal. The indicator is based on Momentum and compares the last closing price of the asset with the range of its closing prices for a certain period. The stochastic oscillator is displayed in the form of two bands of different colors. Like the RSI, it oscillates between 0 and 100. When the market turns, the lines of the indicator cross and change direction. When the indicator is below 20 or above 80, the asset is considered overbought or oversold.

Signal type: leading; entry/exit

Base setting. The key triggering points of the stochastic oscillator are the 80 and 20 levels. If the stochastics cross above 80, the price is assumed to be overbought and a sell signal is generated. When stochastics cross below 20 and head upwards, we can assume the price is over-sold and we will get a buy signal.

Example: On the chart for $TSLA, you can see that almost every time the stochastic lines cross above 80, there is a correction in the price of the stock. This confirms the theory that a value above 80 generates a sell signal. And when the indicator lines cross below 20, the price moves upwards, which serves as a signal to buy the asset.

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