| If you want to time your trading signals
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| | levels.
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| with great accuracy then you need
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| | A signal is generated when the lines
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| momentum indicators and if you are
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| | cross.
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| looking for one of the best look no
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| | The zones above and below these two lines
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| further than the stochastic. It is an
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| | are referred to as stochastic bands.
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| essential indicator for all traders
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| | Overbought and oversold levels.
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| serious about making bigger profits so
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| | The 80% value is used to show when prices
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| let's look at it.
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| | are overbought and, the 20% value is used
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| Why is it such a vital indicator?
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| | to indicate when prices are oversold.
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| Quite simply, it gives you advance
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| | The Stochastic generates signals in
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| warning of shifts in price momentum near
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| | various ways and the two below are very
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| important turning points allowing you
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| | effective:
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| enter the market with great accuracy for
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| | 1. Overbought Oversold
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| bigger profits.
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| | When the 20% and 80% trigger lines are
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| An Introduction
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| | crossed the following action is taken.
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| George Lane, who developed the stochastic
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| | Buy when the stochastic moves below 20%
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| indicator, concluded that in an up-trend,
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| | and then rises above that level and sell
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| prices tend to close near their high, and
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| | when the stochastic rises above 80% and
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| in a down-trend, prices tend to close
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| | then falls back below this level.
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| near their lows.
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| | 2. Stochastic Crossovers
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| The further the price closed away from
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| | Crossovers are very effective.
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| the low or high the stronger the trend
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| | Buy when the %K line rises above the %D
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| was likely to be.
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| | line and sell when the %K line falls
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| We have all seen this in forex markets
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| | below the %D line. You need to be
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| and this simple observation was the basis
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| | cautious of short-term crossovers that
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| for the stochastic indicator.
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| | may generate "false" signals.
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| The stochastic indicator therefore is:
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| | The best crossover is when the %K line
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| A momentum oscillator that can warn of
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| | intersects after the peak of the %D line
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| strength or weakness in a currency in
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| | (known as a right-hand crossover).
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| advance making it a great leading
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| | 3. Stochastic Divergences
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| indicator to confirm trading signals
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| | Divergences between the stochastic and
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| against chart support or resistance.
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| | the underlying price trend also offer
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| The Technical Bit!
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| | good signals to trade and are a great
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| Don't worry if you don't understand how
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| | leading indicator for entering positions.
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| the equation works - it's a visual
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| | If prices are making a series of new
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| indicator and you can simply look for the
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| | highs and the stochastic is moves lower
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| set ups on most major chart services so
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| | or crosses then you have a warning sign
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| the math's below is only for those of you
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| | that price momentum is weakening and a
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| who really want to know - for the rest of
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| | top may be at hand and vice versa in a
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| you skip it and move to the next
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| | bear market.
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| paragraph.
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| | Combining the Stochastic With Other
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| The stochastic is plotted as two lines
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| | Indicators
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| %K, a fast line and %D, a slow line.
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| | The stochastic is probably the best
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| The %K line is more sensitive than %D
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| | momentum indicator and can work with just
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| The %D line is a moving average of %K.
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| | support and resistance on your forex
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| The %D line triggers the trading signals.
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| | charts. It can also be combined with
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| The way the stochastic is plotted is
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| | other momentum indicators to filter false
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| actually very similar to the way a moving
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| | signals and the Relative Strength Index
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| average is plotted.
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| | is ideal for this.
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| Just think of %K as a fast moving average
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| | If you want to improve your forex trading
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| and %D as a slow moving average.
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| | strategy and time you're trading signals
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| The lines are plotted on a 1 to
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| | with great accuracy, take a look at the
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| 100-scale.
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| | stochastic indicator and you will improve
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| "Trigger" lines are normally drawn on
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| | your chances of currency trading success.
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| stochastic charts at the 80% and 20%
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