Stochastic Oscillator is essentially a momentum indicator that measures the strength of currencies. The use of this oscillator is particularly useful when it comes to forex trading.
If you want to become a good currency trader, you should be able to compare the performance of currency pairs over a certain period of time. So you will be able to see approximately where the pair will move in the future.
The values of stochastic oscillators are enclosed in the range of 1 to 100. They have the figures on whether the currency is currently oversold or overbought.
If the value of the stochastic oscillator goes beyond 80, it indicates that a particular currency pair is overbought. And if the value falls below 20, it means that the pair was oversold.
Stochastic Oscillator can be used to measure other variables, but it is best to use it exactly in the forex market, as it is able to measure very well the relative strength or weakness of individual currency pairs.
This makes it an invaluable tool when it comes to trading, as the Stochastic can determine the specific action to be taken by a trader in the interests of his benefits.
When the value goes beyond 80, then the currency should be sold. When the value falls below level 20, then the currency should be purchased.
Stochastic Oscillator can be used to identify very important trends, but the period of analyzed time should be also taken into account. The shorter the period, the more likely the oscillations. And if the gap is too long, then it will be difficult to a trader to correctly analyze certain price movements.