Stochastic divergence

Stochastic is another indicator that can indicate when a trend may be ending. Stochastic is an oscillator that measures overbought conditions and on-sale market. Has two lines similar to the MACD indicator, in the sense that one is faster than the other.
Stochastic divergence
How to use the stochastic?

As mentioned above, the stochastic tells us when the market is able to overbought or oversold. Stochastic uses a scale of 0 to 100.

When the stochastic lines are above 70 (the red dotted line in the figure above) means that the market is overbought.

When the stochastic lines are below 30 (the dotted blue line) means that the market is oversold.

As a general rule, buy when the market oversold and sell when the market is overbought conditions.

Looking at the chart above, we can see how Stochastic shows overbought conditions of the market for a while. Based on this information, you can guess where the price goes?

Many traders use the stochastic in different ways but the main purpose of the indicator is showing the market is in a position of overbought or oversold, and divergence pattern.

Next time you will learn to use the stochastic according to your personal way of operating. Now we will learn the following prompt: RSI.