Good evening to all readers of this great platform, in my last articles I decided to talk a little about the technical indicators used in trading, this is mainly due to the market movement that is taking place at this time where it can show us clear signals of entry or exit of the same, that is why the need for the study of trading.
For this article, I bring you information about a technical indicator of great relevance from my perspective, which is called "Stochastic Oscillator" as it is a technical indicator which from my perspective has essential characteristics when trading, mainly measuring the strength with which a market is handled in a certain direction.
Screenshot taken at: Pixabay
To learn how to use the technical indicator of the stochastic oscillator, it is necessary to learn a little about this indicator, mainly is responsible for measuring the strength of a market by the amount of excessive buying or excessive sales, which will determine the strength that has a market in the direction it is, and thus to understand the behavior of the market.
The stochastic oscillator, is conformed by 2 lines that are the indicators, called %K line and %D line, considered as the 2 moving averages that generate the signals in this indicator, and by means of the study of them we can evaluate the force that the market possesses.
The %K line, is always considered as the fast moving average, which performs the functions of indicating the main behavior of cryptoasset, but this line to perform its functions, must comply with a complement known as the %D line, being this the slow moving average that is responsible for complementing the %K, and between the 2 lines make up the Stochastic Oscillator, to give you an idea of its operation I will show you the following graph.
Screenshot taken at: Binance
In the graph shown above, we can see how the "Stochastic Oscillator" marks the entry signals to buy or exit a market, which are reflected by crossing the %K line (represented as the fast) on the %D line represented as the slowest, which is the complement of the first moving average.
On the other hand, it shows the changes of market trend, either in bullish or bearish market, giving good market signals, however, this indicator can also give false signals in the market, that is why it must be complemented with other indicators that help us to confirm what this technical indicator is indicating as possible behavior.
Now, as I like to point out on other occasions, is it possible to trade only with this indicator? The answer is still a resounding no, this is because it can give false signals due to lack of additional information, which can be generated by other technical indicators, which is why when trading we require several indicators to make the right decision in the market.