There is a whole misconception about the use of technical indicators in trading. Most traders are using too many indicators without even researching and understanding the process and how terms are calculated. They do not even bother to calculate the veracity and accuracy of their indicators. According to the latest study, most indicators have lower than 30% accuracy rate, but traders are continuing to use them. Let us analyze one of the most renowned indicators in trading- the Stochastic Oscillator.
Stochastic Oscillator can be used to gauge the momentum and the speed of a particular price on a given period of time. The Stochastic Oscillator Indicator will perform at its best when using together with price movement, volume change, chart patterns, and other leading indicators. Trend following can also result in a profitable strategy when it is used in conjunction with stochastic s. It should also be paired with the multi-frame analysis to enjoy its full benefits.
The Stochastic Oscillator is an indicator of a momentum which compares the closing price to the particular price range on a specific period. It is known to be one of the earliest oscillators in the security trading that can be used to anticipate the movement in the market. To define ‘what is a stochastic oscillator,’ Stochastic is a Greek word that can be translated to ‘random.’ In terms of trading, it refers to the use of previous actions to predict the future result of trading. Oscillator refers to the recurring variations in the equilibrium position. This can be computed using the %K wherein it is equal to the current lowest price minus the lowest price in the previous 14 sessions of trading divided by difference of the highest and lowest trading over the 14 sessions multiply by 100.
The Benefits of Stochastic Oscillator
Stochastic Oscillator is different when compared to the various other types of momentum indicators. The benefits of Stochastic Oscillator includes its accuracy, adaptability factor, helps traders in the trend play and the ease of use. Most of the users of this indicator laud the accuracy of its buy and sell signals with only a tiny space for mistake. You will be able to instantly view a pattern that is forming that depends on the chosen time and the price period. It has a high level of perfection when it comes to its adaptability to the time factor. Its time frame can negate the confusing impact on the short period especially when there is a sudden spike in price. The convenience and the easy-to-understand charts of stochastic is the reason why most of the traders are choosing this indicator. This is the favored indicator of the advanced and the newcomers in the industry.
The seasoned and the new traders can reap the benefits that Stochastic Oscillator is offering. Extending the use of the indicator during various market conditions will improve the efficiency of the trader immensely.