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The most commonly used stochastic is the slow stochastic. Stochastic oscillators are also used to determine either the strength of a trend or when the end of a trend is approaching. Stochastics are displayed by two lines known as %K (faster) and %D (slower) that oscillate between a scale ranging from 0 to 100.
Stochastics
The mathematics behind the oscillators is unimportant; what is important is the meaning and placement of the lines. When the lines cross above the 80 line, it represents a strong upward trend; when they cross below the 20 line, it represents a strong downward trend. When the %K line crosses over the %D line it could indicate a change in the trend, and a possible exit point. When prices are fluctuating, a normal appearance for the stochastics will be for them to cross over one another in mid range – which indicates the lack of a trend.
The stochastics give their best signal when both the lines are moving to new ground at the same time as the actual price. This is a good indication of the continuation of a trend. However when the stochastics cross in a different direction of a prolonged trend this could be an indication to either exit or switch directions.
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