A Very Cool Technical Indicator- Stochastic

Stochastic indicator is an oscillator ( an oscillator is an indicator that can only be at two points- overbought or oversold).

the financial analyst Dr. G. lane in the 1950's promoted the use of stochastic, he observed that in an up trend, prices may close near there high and in a down trend prices may close near there low.

stochastic has two lines one line reacts to price movement fast, while the other is slow to react to price movement, why this occurs will be discussed later.

stochastic is scaled from 0 to 100, and as stated earlier it shows when the forex market is overbought or oversold. when the faster line cross over the slower line and goes up above the 70 scale the market is overbought (at this point a lot of traders are buying so it's time to go short). when the faster line cross under the slower line and goes down below the 30 scale the market is oversold, at this point its time to go long.

just like every indicator stochastic could give wrong data, with this in mind stochastic should not be the only indicator used to trade. i believe that other fundamental and technical indicators should be used with it, and incorporated in to a reliable trading system (i will say what a trading system is later).

finally, stochastic also shows when a previous trend will end, when it shows this, it could mean that price is about to change direction.

I'm still studying this indicator and i will provide more details later.

thank you for reading.