Analysis of Stochastic Oscillator Indicator

A lot of forex trading information can be gathered from the shapes and duration of the market tops and bottoms of the stochastic oscillator technical indicator.

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

Forex Market Tops

Narrow forex market top that does not reach very high above 80 %

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

Very high, wide forex market tops

Wide forex market top mean that the forex bulls are very powerful much more than the forex bears and the ensuing short term trend reversal (retracement), will be very short lived. Retracement on the stochastic oscillator technical indicator will not even reach the over-sold areas before the stochastic oscillator technical indicator moves back to the overbought levels.

Forex Market Bottoms

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

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

Very wide, deep forex market bottoms

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