Technical Analysis of Stochastic Oscillator

A lot of stock indices 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 stock indices instrument stays overbought or oversold is an important factor when analyzing the strength of the market trends.

Market Tops

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

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

Very high, wide market tops

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

Market Bottoms

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

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

Very wide, deep stock market bottoms

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