Stochastic Indicator: What It Is and How to Use It in Fixed Time Trading on Olymp Trade Platform

The stochastic indicator is a technical analysis tool that is used to identify possible price reversals. The indicator is based on the premise that prices tend to close near the high or low of the trading range during an up- or down-trend respectively. The indicator consists of two lines, %K and %D, which are created by applying moving averages to data derived from price action.

How It Works

The %K line is simply a fast moving average of the last n periods' %D line. The most common values for n are 3, 5, and 9 periods. Meanwhile, the %D line is a slow moving average of the last n periods' %K line. As with the %K line, the most common values for n are 3, 5, and 9 periods.

The stochastic indicator oscillates between 0 and 100. When the value of the %K line is above 80, it is said to be overbought, indicating that prices may be due for a pullback or correction. Conversely, when the value of the %K line is below 20, it is said to be oversold, indicating that prices may be due for a rebound.

Traders often look for bullish or bearish divergences between price action and the stochastic indicator as possible trade signals. A bullish divergence occurs when price makes a new low while the stochastic indicator fails to make a new low, indicating that selling pressure may be weakening and that prices may be due for a rally. A bearish divergence occurs when price makes a new high while the stochastic indicator fails to make a new high, indicating that buying pressure may be waning and that prices may be due for a selloff.

How to use it in Fixed Time Trading on Olymp Trade Platform?                                                               

Now that we know how Stochastic works let’s see how we can apply it on our Fixed Time trading charts on Olymp Trade platform:

Set up your chart:  Add Stochastic (choose 5 as your parameters). 

Identify overbought/oversold conditions: If Stochastic goes above 80 (overbought), look for ways to SHORT FIXED TIME if you haven’t already established any positions;   If Stochastic goes below 20 (oversold), look for ways to BUY FIXED TIME if you haven’t already established any positions;

 Identify emerging divergences: If you see that Stochastic starts diverging from price while in overbought/oversold territories – this might signal change of momentum so pay close attention!;    Watch out for fakeouts! Some might argue that not all divergences lead to actual trend reversals so watch out for “fakeouts” – i.e., if after initial divergence current price continues with its prevailing trend instead of following through with what Stochastic initially suggested…   

All right then – hope you have enjoyed this post and find it helpful! As always – feel free to leave us your feedback in comments below!   

Conclusion:

In conclusion, The stochastic indicator is a technical analysis tool that consists of two lines, %K and %D, which are created by applying moving averages to data derived from price action. The indicator is used to identify possible price reversals and oscillates between 0 and 100. Traders often look for bullish or bearish divergences between price action and the stochastic indicator as possible trade signals.