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Technical Analysis of Stochastic Oscillator

A lot of information can be gathered from the shapes and duration of the tops and bottoms of the stochastic oscillator.


The amount of time the currency pair stays overbought or oversold is an important factor when analyzing the strength of the market trends.

 

Market Tops


Narrow top that does not reach very high above 80%

This means that the bulls are weak, and that the bears have overpowered the bulls very quickly. This means that the bears might push the price further down without much resistance from the bulls.



Very high, wide tops


Wide tops mean that the bulls are very powerful much more than the bears and the ensuing short term reversal (retracement), will be very short lived. The retracement on the stochastic will not even reach the oversold levels before the stochastic moves back to the overbought levels.

 

Market Bottoms


A narrow bottom that does not reach very deep below 20%


The narrow bottom means that bears are weak in their attempt to push the price down, the bulls have gained control of the price pretty fast so the price movement upwards will continue for a while. And the upswing will continue for a while.



Very wide, deep bottoms


A wide bottom is a sign that the bears are very strong and the sellers are in control of the price, therefore any retracement upwards will not stay for long.

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