Forex Trading Daily Forecast EUR/USD

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SLOW STOCHASTIC – INDICATOR

Slow-stochastic-indicator

Slow stochastic is an indicator -  type oscillator and was developed by George Lane. It helps you  to see the change in sentiment among investors from bullish to bearish and vice versa. Slow stochastic may also indicate situation when traders have exceeded the size of their positions in a given direction and also can signal reversing  the trend  when trading with  currency pairs.

How is slow stochastic  calculated

Slow stochastic consists of two lines - K and D. They oscillate in the Range from 0 to 100. K is based on the current closing price of the currency pair and is in conjunction with the range of historical values for the closing prices for that currency pair. D is the moving average of K.

When the closing price of the currency pair is near the top of the Range of historical closing prices, line K (followed by line D) will move higher. When the closing price of the currency pair is near the bottom of the Range of historical closing prices, line K (followed by line D) will move lower.

Let’s see the n example, EUR / USD is closed between 1.4200 and 1.4300 for each of the last 14 trading periods and closes at 1.4295 (near the top of the Range), then K line will move to the top of the Range for the indicator.

Signals for slow stochastic trading

Slow stochastic trading gives signals when crossing in or out  the top or bottom reversing zone. Upper Reversible zone is that in which the indicator has a value above 80. When K  has value above 80, it shows that currency pair may be overbought and may soon reverse  the trend.

Lower Reversing zone is the area in which the indicator has a value below 20. Where K is below 20, it gives a signal that the currency pair may be oversold and may soon reverse  the trend.

Signals to open a position – when K crosses the value from  above 80 to below 80 you can sell a currency pair because it shows that the mood among investors towards this currency pair is shifted from bullish to bearish.

When K crosses the value from below 20  to over 20, you can buy a currency pair, because it signals that the mood among investors towards this currency pair is shifted from bearish to bullish.

Signals to close a position – when K line reverses  the direction of movement, after having crossed either  over 20 or under 80 and then crosses the line D. You can close your position, assuming that the mood among investors has changed direction again.

Advantages of slow stochastic:

- It helps you predict  the change in sentiment among investors to a currency pair.
-  It helps  confirm the strength of current trends movement

Disadvantages slow stochastic:

- It lags behind the market because the data used to calculate the slow stochastic is historical,  which is not a  guarantee that it will happen again in the near future.
- May give false signals.

Forex Trading Daily Forecast EUR/USD

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