How do I set up Stochastic Oscillator, and how does it help in trading?
A Stochastic Oscillator is a popular trading indicator that is used to generate overbought and oversold signals. It is also used to determine trends and forecast trend reversals.
How to calculate A Stochastic Oscillator
The Stochastic Oscillator is calculated by the formula:
max(Hn) is the maximum price for a specified number (n) of periods.
min(Ln) is the minimum price for a specified number (n) of periods.
Co the closing price for the current period.
How to use a Stochastic Oscillator
A stochastic Oscillator is range-bound, which means that it always moves within the range from 0 to 100. When it moves above 80, it means that the asset is overbought. When it moves below 20, the asset is oversold.
It doesn’t always move the trend reversal, though, because strong trends may stay in an overbought or oversold condition for a long time. To find clues about future trend shifts, it is recommended to be checking the changes in the oscillator movement. So Stochastic Oscillator is always drawn with a simple moving average. The divergence between the stochastic oscillator and the price movement is a signal of a trend reversal.
So, when the asset price reaches a new low during a bearish trend, but the oscillator displays a higher low, it may mean that bears have exhausted their momentum, and soon, a bullish trend may start.
How to set up a Stochastic Oscillator
To set up signals based on a Stochastic Oscillator movement, open the Alerts tab.
- Pick the exchange.
- Select the coin pair for which you want to receive alerts.
- In the Select indicator field, pick SO - Stochastic Oscillator.
- Click on the Set Alert button.
That’s it. Now, you will receive alerts as soon as a Buy or a Sell signal comes.
If you want to change the alert settings, click on the Open Settings button in front of the alert, and implement the required changes.
To delete the alert, click the Delete Signal button in front of the alert you want to delete.