Stochastic Oscillator Energies Technical Analysis & Stochastic Oscillator Trading Signals

Developed by George C. Lane

The Stochastic Oscillator is a momentum indicator - it shows the relation between the current closing energies price relative to the high and low range over a given number of n periods. The Oscillator uses a scale of 0-100 to draw its values.

This Oscillator is based on the theory that in an up energies trend market the energies price closes near the high of the energies price range and in a downward trending market the energies price will close near the low of the energies price range.

The Stochastic Lines are drawn as 2 lines- %K and %D.

• Fast line %K is the main
• Slow line %D is the signal

3 Types of Stochastics Energies Trading Oscillators: Fast, Slow and Full Stochastics

There are 3 types are: fast, slow and full Stochastic. The three indicators look at a given chart period for example the 14-day period, and measures how the energies price of today's close compares to the high/low range of the time period that is being used to calculate the stochastic.

This oscillator works on the principle that:

• In an upward energies trend, energies price tends to close at the high of the candlestick.
• In a downward energies trend, energies price tends to close at the low of the candlestick.

This energies indicator shows the momentum of the Energies trends, and identifies the times when a market is overbought or oversold.

Energy Technical Analysis & How to Generate Trading Signals

Most common techniques used for technical analysis of Stochastic Oscillators to generate energies trading signals are crossovers signals, divergence trading signals and over bought oversold areas. The following are the methods used for generating signals

Energy Trading Crossover Trading Signals

Buy signal- % K line crosses above the %D line (both lines moving up)

Sell signal- %K line crosses below the %D line (both lines moving down)

50-level Crossover:

Buy signal - when stochastic lines cross above 50 a buy energies trade signal is generated.

Sell signal - when stochastic lines cross below 50 a sell energies trade signal is generated.

Divergence Energy

Stochastic is also used to look for divergences between this indicator & the energies price.

This is used to determine potential energies trend reversal signals.

Upwards/rising energies trend reversal- identified by a classic bearish divergence

Energies Trend reversal - identified by a classic bearish divergence

Downward/descending energies trend reversal- identified by a classic bullish divergence

Energies Trend reversal - identified by a classic bullish divergence

Oversold/Overbought Levels on Indicator

Stochastic is mainly used to identify potential overbought and oversold conditions in energies trading price movements.

• Over-bought values greater than 70 level - A sell signal occurs when the oscillator rises above 70% and then falls below this level.

Overbought - Values Greater 70

• Oversold values less than 30 level - a buy signal is generated when the oscillator goes below 30% and then rises above this level.

Oversold - Values Less Than 30

Trades are generated when the Stochastic Oscillator crosses these levels. However, overbought/oversold levels are prone to whipsaws especially when the energies trading market is trending upwards or downward.