Stochastics – also commonly known as the slow and fast indicator, was originally developed by George Lane in the 1950s and has without a doubt grown to become one of the most popular technical indicators used in trading today. However, in order for you to use them correctly, especially when it comes to day trading with Stochastics, it is important that you understand the nature of this indicator.
This indicator uses the momentum of a stock as a focus point in forecasting tradable markets. Here, the closing price of the given commodity to its price range is compared over a given period of time which generally, hovers around 14 days. Indication is rather simple – price tends to close near the past highs in bull markets, and near lows in bear markets. Signals can be recognized when the Stochastic oscillator crosses its moving average.
The Two Stochastic Lines
%K = this is the primary line – displayed as a solid line.
%D = this is a moving average of %K – displayed as a dotted line.
Day Trading With Stochastics
There are many technical indicators available for stock trading analysis. Having said this, finding the right indication tool to use in day trading may turn out to be a daunting task. The truth, however, is that most of the indicators available to you can be used in day trading by a quick change in the original time periods used in creating the indicator. Remember – whether the data used in a single period is equivalent to a day, a week, or a month, the actual interpretation thereof will remain the same.
Advantage of Day Trading with Stochastics
Stochastics is believed to be one of the most effective technical indicators used in day trading. In fact, most day traders will agree. Furthermore, by using Stochastics in your day trading, your chances of entering a position that is based on a false signal, is greatly reduced.
Disadvantage of Day Trading with Stochastics
Although very effective in day trading, not all charting services will include this indicator as an option in their charts. Should this issue arise, simply consider the use of another charting service.
Now that you know more about day trading with Stochastics, you can enter the market with much more accuracy, which in turn, will play a role in bigger profits. However, as with any other technical indicator, it may not always be an easy task in accurately determining the ideal buying and selling points, but experimentation in different chart time frames and indicators will most certainly assist in giving you the confidence you need in your decisions.