![]() Momentum indicators like stochastics are considered more valuable by chart experts in sideways markets, compared with uptrends or downtrends, because of the way they oscillate between relatively overbought and oversold prices. It may be a particularly useful time to look at stochastics -if you like chart indicators. What are stochastics saying about stocks now? 80 and 20 are the most common signal levels used, but can be adjusted per individual preferences. When stochastics are below 20 and move above that number, it indicates a buy signal. When stochastics are above 80 and move below that number, it indicates a sell signal. Generally, the area above 80 indicates an overbought region, while the area below 20 is considered an oversold region. Note that the time frame you pick when using stochastics, or other indicators/fundamentals, is at your discretion, and there is no consensus view as to what time frame optimizes stochastics. The theory behind stochastics is that these lines generate buy or sell signals when closing prices are near recent extreme highs or lows (i.e., sell signals after an uptrend and buy signals after a downtrend). Consequently, %D is generally considered the more important of the 2 lines. %K (blue line in the bottom half of the chart above) represents the level of the stock or index's closing price relative to the high and low range over a specified period of time, and %D (orange line in the bottom half of the chart above) attempts to smooth out the %K line by taking a 3-day moving average of the %K line. ![]() Stochastics are actually made up of 2 lines, which tend to move in tandem.
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