Stochastic Indicator

There are many technical analysis indicators use in share analysis, such as Stochastic indicator, MACD, Bollinger Band, Elliot Waves, RSI, Fibonacci, etc.  In this technical analysis course, we are explaining the Stochastic Indicator and it application.

Introductory Stochastic Indicator

Stochastic Indicator is the indicator that investor could rely on.  It has been proven in market with more reliable and also provides a clear guideline for investor during actual stock trading process.  Having said that, we do analyze Stochastic Indicator during share analysis procedure.

Stochastic indicator also name as KD index, this is because %K and %D are used in the stochastic indicator.  The %K could be understood as the relative share price position within a time-cycle.  Whereby the %D is the smooth %K by averaging the %K performance.

Visit the link enclose for investor who want to learn the Stochastic formulation.


Sectionalize of Stochastic Indicator

There are two sectionalizing zone in a Stochastic indicator chart or KD chart, namely over-sold zone and over bought zone.  While the K is located in over bought zone, it does not means current share price is over-bought and investor should sell the share, it should be understood as this particular share currently locate at relatively high share price with the time-cycle.  The same apply for over-sold zone.

Stochastic Indicator

Stochastic Indicator

While K reach the over-sold or over-bought zone, it just giving a signal to investor but not a guideline for share trading.  We are elaborating this scenario in the myth of applying Stochastic indicator.




Application of Stochastic Indicator

Stochastic indicator is mostly use together with a few application guidelines.

1.      Position of K index

We require to closely examining the share trend while the Stochastic indicator either locate at over-sold or over-bought zone.  Read our article about the myth of using Stochastic Indicator.


2.      Divergence or convergence of K index

In the Stochastic chart, some time we may encounter the K index already

Stochastic Indicator

Stochastic Indicator

showing a moving up trend however the price action still maintain at moving down, this scenario appears as contradiction between K index and price movement.  Perhaps, this is also the signal to show the potential of reverse of pattern.




In our research, we find out that Stochastic Index work well with medium-short time-cycle period.  We also found that Stochastic indicator should always analyze with moving average for getting a better picture of share trend movement.

Apply Stochastic indicator with moving average before making any trading strategy, and this will help investor to establish better chances for making profit in share investment.