The rise of cryptocurrency has seen the introduction of different technical analysis methods and indicators implemented by traders to determine price fluctuations and the relationship between opening and closing prices. Some of these indicators include Moving Averages, Relative Strength Index, Ichimoku Cloud, etc. In this article, we will elaborate on the stochastic oscillator that is used by traders in stock markets, Forex, and cryptocurrency markets. We will also give relevant information on how you can use this indicator to trade on the bit4you. 

What is a stochastic oscillator?

This is an indicator that compares a particular closing price to the prices of the asset over a period of time. George Lane developed this indicator in the 1950s. The term stochastic refers to the point of a current price in relation to the price range over a period. Traders can predict price turning points by comparing the closing price of a security to its price range. To better understand, the general theory of the stochastic oscillator is that a stock’s closing price gets closer to the recent highs on the chart if the trend is moving upwards and closer to the lows if it moves on a downtrend. 

Formula for stochastic oscillator

% K = (C-L14/H14-L14) x 100

Where 

C =  the most recent closing price

L14 = the lowest price traded of the 14 previous traded sessions.

H14 = the highest price traded during the 14-day period

% K = the current value of the stochastic indicator

Basically, stochastic comprise two values: %K (percent-K) and %D (percent-D), with %K providing the indicator while the latter is a moving average of the %K indicator. Understand that these indicators range from 0 to 100. The area above 80 represents overbought conditions, while the area below 20 shows oversold conditions. There is trend reversal when% K line and% D line cross an overbought or oversold region. In other words, the buy signal occurs when the %K line crosses %D line from below the oversold region while a signal occurs when %K line crosses %D from above in the overbought territory. 

How to use Stochastic Oscillator on bit4you

Assuming that the user already has a crypto account and wallet and has been trading on the crypto space, this is how they go about using a stochastic oscillator on bit4you. Every trader should understand that stochastic uses a standard period of over 14 days. These days can be adjusted based on the analytical needs. To calculate a stochastic oscillator, subtract the low for the period from the currency closing price, divide the total range for the period and then multiply by 100.let us consider that the 14-day high is $100, the low is $75 and the current close is about 150. The calculation will be (150 – 75)/100 – 75) * 100

Here is a summary of the stochastic oscillator indicator.  With this indicator, two relationships are peculiar. The relationship between the high-low range over a given number of days  and the relationship of the low over the same number of days. The stochastic oscillator occurs when the trader uses the low. The stochastic oscillator occurs when the trader uses the low. Using the stochastic oscillator in a highly trending market could not be the best option because if there is a longer period of trendedness, the trader could panic or get impatient. Notwithstanding, it is good to apply other indicators when trading.