Analyzing the Signals of the Stochastic Oscillator Indicator
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If the stochastic oscillator rises above 80, signs point to an overbought stock; prices could well fall in the near future. If the stochastic oscillator falls below 20, signs point to an oversold stock; prices could very well bounce upwards.
If %K rises above %D, that’s a buying signal (unless the values are greater than 80)If %K falls lower than %D, that’s a selling signal. If %K rises above 90 or 95 and then falls, you’ll probably want to sell before %K falls below 80.
A divergence happens when the stochastic oscillator (typically the %D line) and the stock price move in opposite directions; this means the general trend is losing its strength, and could very well reverse.
If the stock price trends downwards and makes lower lows, but the stochastic oscillator does not fall further than its prior lows, that’s a bullish divergence
if the stock price trends upwards and makes higher highs, but the stochastic oscillator does not rise further than its prior highs, that’s a bearish divergence.
The divergence signals are amplified if %D is above 80 or below 20.
The stochastic oscillator is often paired with MACD; these two technical indicators work well together.
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If the stochastic oscillator rises above 80, signs point to an overbought stock; prices could well fall in the near future. If the stochastic oscillator falls below 20, signs point to an oversold stock; prices could very well bounce upwards.
If %K rises above %D, that’s a buying signal (unless the values are greater than 80)If %K falls lower than %D, that’s a selling signal. If %K rises above 90 or 95 and then falls, you’ll probably want to sell before %K falls below 80.
A divergence happens when the stochastic oscillator (typically the %D line) and the stock price move in opposite directions; this means the general trend is losing its strength, and could very well reverse.
If the stock price trends downwards and makes lower lows, but the stochastic oscillator does not fall further than its prior lows, that’s a bullish divergence
if the stock price trends upwards and makes higher highs, but the stochastic oscillator does not rise further than its prior highs, that’s a bearish divergence.
The divergence signals are amplified if %D is above 80 or below 20.
The stochastic oscillator is often paired with MACD; these two technical indicators work well together.
