Posted by forex at 9:58 AM
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1. First, look at the line graphs of fast %K and fast %D and notice where the lines intersect. If those lines show too much volatility (many sharp peaks and valleys), then you can use the slow %K and slow %D lines, which are smoother.
2. Now, look at the instances where the %K line crosses and rises above the %D line. This indicates point when you should buy the stock. And if you look at the instances where the %K line dips under the %D line, then this is a signal to sell.What is the rationale for this method of stochastic interpretation? The %K line is above the %D line when the price is on the rise, and it lies below the %D line when the price is falling. And because stock traders aim to buy low and sell high, these crossings signal the appropriate time to buy or sell.
3. For another way to interpret the stochastic oscillations, observe when the %K and %D lines rise above .8 = 80% and dip below .2 = 20%.When the %K and %D lines rise above 80%, many stock analysts recommend selling as soon as the lines dip back down below 80%. And when the %K and %D lines dip below 20%, analysts advise stock traders to buy once the lines rise above 20%.
4. To learn a third way of using a stochastic oscillator, first make a graph of each day's stock price and place that graph above the graph of %K and %D values.
5. Now, look at divergences in the trend of the stock price versus the trend of the %K and %D lines.When the price dips to a lower low, but at the same time the %K line has a higher low, this is a signal to buy. When the price rises to a higher high, but at the same time the %K line has a lower high, this is the point at which to sell.