Stochastic Indicator Overbought and Oversold Levels

Stochastic oscillator indicator is used to look for overbought/oversold forex signals. Overbought levels are above 80% level & oversold levels are below 20% level.

Key is to not only look at Stochastic oscillator indicator when the %K or %D lines touch or cross overbought/oversold, but also when they cross over & back through these levels.

Just as with other forex momentum indicators such as RSI indicator the Stochastic oscillator indicator can stay inside the overbought & oversold levels for some time. When this forex stochastic oscillator indicator stays within these levels for a long time it indicates strong upward Forex trend (overbought) or strong downward Forex trend (oversold).

When the stochastic lines cross back below or above these overbought and oversold levels it is usually a good indication of an upcoming forex trend reversal.

A trader can look for further forex signals to make the oversold or overbought levels more reliable if:

Buy Forex Signal Using Stochastic Oscillator Oversold Levels

• Before Buying, the %K & %D lines turn upwards from below 5%.
• A reading that is floating near 5% means that forex bears are in control and there is selling of the currency pair. A trader should wait for the Stochastic Oscillator to move back above 5% as a sign that the selling pressure is easing.

The Buy forex trading signal is confirmed when the stochastic oscillator indicator moves above oversold, then after a while returns to oversold but this time moves up immediately without staying at the overbought.

Buy Forex Signal Using Stochastic Oscillator Oversold Levels

Sell Forex Signal Using Stochastic Oscillator Over-bought Levels

• Before Selling, the %K and %D lines turn down from above 95%.
• A reading that is floating above 95% means that forex bulls are in control and there is buying of the currency pair. A trader should wait for the Stochastic to move below 95% as a sign that the buying pressure is easing.
• The sell signal is confirmed when the stochastic moves below overbought, then after a while returns to overbought but this times moves downward immediately without staying at the overbought.

Sell Forex Signal Using Stochastic Oscillator Over-bought Levels

Looking at different chart time frames when using oversold and overbought levels can also help to determine the correct entry strategy when opening a forex trade.

The main theory is to trade with the forex market trend. Always double check the forex trading signals with the longer term stochastic oscillator indicators to confirm forex trading signals on the shorter chart time frame periods.