Cashing In on Stochastics

Another useful indicator with an extremely clumsy name is the stochastic oscillator. This momentum indicator considers the current closing price of a security in relation to a high-low range of prices over a set number of look-back periods. This oscillator can be very useful when used in tandem with your candlestick charts. And in addition to its usefulness as an indicator of momentum, the stochastic oscillator may also be used as an overbought or oversold indicator when readings are at extreme levels: 30 percent for oversold and 70 percent for overbought (see the section on RSI earlier in this chapter).

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