Stochastic Oscillator (Stoch) Indicator
What Is A Stochastic Oscillator?
A stochastic oscillator is a technical momentum indicator which determines closing price variance compared to closing price moving averages over time. Also, called the "stoch", this indicator is helpful in determining the strength and position of the current cryptocurrency market price in relation to recent price trends as well as turning points between bullish and bearish trends.
The stochastic oscillator indicator is a predictive indicator meaning the signal lines usually turn ahead of the cryptocurrency market showing potential future price direction. If the signal lines across on larger time frames, watch for price action and market movement in the same direction.
Measurements With Stochastic Oscillators
The two signal trend lines of the stochastic indicator are used to measure the position of the market and create signals for long and short trading actions.
The these two stoch trend lines are defined within a point range from 0 to 100. The stochastic oversold and overbought zones set at 80 and 20 points with 80 being underbought and 20 being oversold.
This means if the stoch reaches zones above 80, the price is likely to trend downward. If the stoch reachs zones under 20, the price is likely to bounce upward.
Stochastic Trend Line Formulas
Several components make up the stochastic oscillator. Including the trend lines, inputs, and range. The stochastic indicator trend lines consist of two input-based lines including:
- %K trend line - "a.k.a Slow Trend Line"
- Formula: %K = (Price Close - Lowest Price of Input Range / Highest Price of Input Range - Lowest Price of Input Range) x 100
- %D trend line - "a.k.a Fast Trend Line"
- Formula: %D = (Smooth %K Input (Price Close - Lowest Price of Input Range) / Smooth %K Input (Highest Price of Input Range - Lowest Price of Input Range)) x 100
The variance and interactions of these trend lines are based on user-defined periods for both %K and %D which directly factor into the trend line calculations, plotting, and their price-based movements.
On the TradingView platform, standard inputs periods are 14 for %K (slow), 3 for %D (fast), with a smooth input of 3.
These inputs cause two lines to oscillate based on the time frame of the cryptocurrency chart. For example if you applied the stoch indicator to a 4 hour Bitcoin chart, the lines would measure the inputs of those 4 hour candles using the most recent price close, the lowest price in the range, and highest price in the range.
About The Stoch Oscillator Indicator
Oscillator indicators like the stochastic are great at determining cryptocurrency market turning points. Traders can apply the stoch to coins like Bitcoin and utilize the indicator's signals to help identify tops and bottoms in the market before the market's price action moves by watching the %K and %D converge and crossover each other. Because of this, the stochastic is a leading indicator which can be used to forecast market trends and identify market behavior.
Stochastic Bitcoin Trading Tips
The stochastic indicator is a great indicator to have in your cryptocurrency trading tool bag. The cryptocurrency markets function just like the standard financial markets do and move in similar patterns, trends, and waves. The oscillation of the stoch identifies the high and low points of these patterns.
Cryptocurrency traders can use the stochastic indicator to trade Bitcoin and other cryptocurrency coins fairly accurately by following the trade trigger signals on larger scale time frames and by trading in the direction of the global market trend.
Stoch Trade Triggering Signals
The potential to profit from using this
Use the turns in the stochastic indicators to gauge trade entry and exit points in the markets.
Practice Using the Stoch Indicator on Bitcoin Charts
Using Stoch Across Multiple Time Frames
It is helpful to apply the stochastic oscillator across multiple time frames in the cryptocurrency markets and when analyzing specific cryptocurrencies like Bitcoin for example.
Stoch and 1 Hour Bitcoin Chart
Stoch and 4 Hour Bitcoin Chart
Stoch and 1 Day Bitcoin Chart
Stoch and Weekly Bitcoin Chart
Check Out More Indicators
Learn about other indicators and how they can help you trade cryptocurrency!