Chart Decoder Series: Stochastic Oscillator – The Trader’s Radar for Reversals

Key Points

1. The Stochastic Oscillator consists of two lines: %K (fast line) and %D (slow line), with readings between 0 and 100 indicating overbought (above 80) or oversold (below 20) conditions.

2. Key signals include %K crossing above %D below 20 (bullish reversal) and %K crossing below %D above 80 (bearish reversal).

3. In the BTC/USD example, the Stochastic showed overbought conditions (96.49 for %K), but the article notes that overbought doesn't always mean it's time to sell, especially in strong crypto trends.

4. The article suggests combining the Stochastic with other indicators like EMAs, MACD, and RSI for better confirmation of signals.

5. A divergence was observed where Stochastic indicated overbought conditions while RSI (14) was neutral (56.98), suggesting potential continuation of the rally if RSI breaks higher.