Stochastic Indices Indicator Overbought and Oversold Levels

Stochastic oscillator stock indices indicator is used to look for overbought/oversold trading signals. Overbought levels are above 80% level & oversold levels are below 20% level.

The key is to not only look at Stochastic oscillator stock indices indicator when the %K or %D lines touch or cross overbought/oversold, but also when they cross over & back through these levels.

Just as with other indices trading momentum indicators such as RSI indicator the Stochastic oscillator stock indices indicator can stay inside the overbought & oversold levels for some time. When this indices trading stochastic oscillator indicator stays within these levels for a long time it indicates strong upward indices trend (overbought) or strong downward indices trend (oversold).

When the stochastic lines cross back below or above these overbought and oversold levels it is usually a good indication of an upcoming indices trend reversal.

A trader can look for further indices signals to make the oversold or overbought levels more reliable if:

Buy Indices Signal Using Stochastic Oscillator Oversold Levels

• Before Buying, the %K & %D lines turn upwards from below 5%.
• A reading that is floating near 5% means that indices trading bears are in control and there is selling of indices. A trader should wait for the Stochastic Oscillator to move back above 5% as a sign that the selling pressure is easing.

The Buy stock indices signal is confirmed when the stochastic oscillator stock indices indicator moves above oversold, then after a while returns to oversold but this time moves up immediately without staying at the overbought.

Buy Indices Signal Using Stochastic Oscillator Oversold Levels

Sell Indices Signal Using Stochastic Oscillator Over-bought Levels

• Before Selling, the %K and %D lines turn down from above 95%.
• A reading that is floating above 95% means that indices trading bulls are in control and there is buying of indices. A trader should wait for the Stochastic to move below 95% as a sign that the buying pressure is easing.
• The sell stock indices signal is confirmed when the stochastic moves below overbought, then after a while returns to overbought but this times moves down immediately without staying at the overbought.

Sell Indices Trading Signal Using Stochastic Oscillator Over-bought Levels

Looking at different chart timeframes when using oversold and overbought levels can also help to determine the correct entry strategy when opening a indices trade.

The main theory is to trade with the stock indices trading market trend. Always double check the indices trading signals with the longer term stochastic oscillator indicators to confirm indices trading signals on the shorter indices chart time frame periods.