Stochastic Oscillator - Discussing the Different Signals it can Generate Part 2
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A crossover occurs when the fast stochastic (%K line) intersects the slow stochastic (%D line). Because the %K line reacts more quickly to market changes it oscillates at a faster rate than the %D line. Under certain conditions, it can catch up to, and cross over the %D line.
When the %K Stochastic crosses over and moves above the %D Stochastic, the interpretation is that the market rate is gaining at a faster rate than the average represented by the %D Stochastic. This increase in price strength is considered a buy signal.
A sell signal is the result of the %K Stochastic crossing under the %D Stochastic because the faster moving %K line is declining more rapidly than the overall downward trend.
Divergence is simply the difference, or the gap, between the %K and %D Stochastic lines. Because the %K line moves faster than the %D line, the divergence (or gap) between the two stochastics increases as a trend gathers momentum. However, when momentum wanes and the lines come closer together, it indicates the beginning of a rate reversal.
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A crossover occurs when the fast stochastic (%K line) intersects the slow stochastic (%D line). Because the %K line reacts more quickly to market changes it oscillates at a faster rate than the %D line. Under certain conditions, it can catch up to, and cross over the %D line.
When the %K Stochastic crosses over and moves above the %D Stochastic, the interpretation is that the market rate is gaining at a faster rate than the average represented by the %D Stochastic. This increase in price strength is considered a buy signal.
A sell signal is the result of the %K Stochastic crossing under the %D Stochastic because the faster moving %K line is declining more rapidly than the overall downward trend.
Divergence is simply the difference, or the gap, between the %K and %D Stochastic lines. Because the %K line moves faster than the %D line, the divergence (or gap) between the two stochastics increases as a trend gathers momentum. However, when momentum wanes and the lines come closer together, it indicates the beginning of a rate reversal.
