George Lane developed the stochastics indicator in the late 1950s. This indicator measures the relationship between a currency pair’s closing price and its price range over a predetermined period of time.
This indicator is measured with the %K line and the %D line, and it is the %D line that forex traders usually follow closely as it will indicate any major signals in the chart. The %K line is the faster while the %D line is the slower of the two lines. Forex traders would need to watch as the %D line and the price of the currency pair begin to change and move into either the overbought (over the 80 line) or the oversold (under the 20 line) positions. The forex trader would need to consider selling the currency pair when the indicator moves above the 80 level. Conversely, the forex trader would need to consider buying a currency pair that is below the 20 level and starting to move up with increased rate.
New forex traders should concentrate on the basics of this oscillator indicator. It is interesting to note this oscillator is a favorite indicator of many forex traders because of the accuracy of data representation. It is easily perceived and it tends to help all forex traders make good entry and exit decisions in their day-to-day trading. One reliable forex trading system that effectively uses this oscillator indicator in one of its trading techniques is Forex Trading Made EZ .