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The Stochastic Oscillator Indictor on a Forex Trading System
Forex traders use a wealth of technical indicators or charts to assist with making trade decisions. Without these indicators or charts, the average Forex trading system investor would more or less be lost in determining an adequate market strategy. One set of technical indicators that is commonly used is termed oscillators. These indicators oscillate or move above or below a set of horizontal lines that represent neutral market movement. One major Forex trading system oscillator is the stochastic oscillator.
What a name!
The stochastic oscillator basically follows the market momentum. Its basic premise is that when a currency is rising, it tends to close near the high point, and when a currency is falling it tends to close near the low point. With the stochastic indicator, two horizontal axis lines are drawn on the chart. One line represents a faster moving average, while the second line represents a slower moving average. Both lines are plotted on a 1 to 100 scale, usually at the 80% and 20% levels. The 80% line signifies that point or level where the market starts becoming overbought, and the 20% line signifies that point or level when the market starts to become oversold.
When to place the trade on the Forex trading system platform
The skill in using any Forex trading system indicator is to know when to place the trade. With the stochastic oscillator indicator, it’s recommended to place the sell trade when the indicator rises above the 80% axis line. That’s because the market will probably turn around and start heading in a downward trend. On the other hand, it’s best to place a buy trade when the indicator falls below the 20% axis line. That’s because the market will probably turn around and head for an upward trend, where currency prices will soon reach higher levels.
In addition, when the slower moving average line starts to move up or down on a Forex trading system chart and crosses the faster moving average line, it’s time to place a buy trade in the market.
from:http://www.fx-auto.com/articles.html