Stochastics

STOCHASTICS: Stochastic is an oscillator popularized by George Lane.  Stochastic consists of two lines: a fast line called %K and a slow line called %D.  Slow Stochastics and Fast Stochastics incorporate both %K and %D.  The Fast Stochastic is very sensitive to market turns but leads to many whipsaws.  Some traders therefore prefer the Slow Stochastic which is a little less sensitive in its identification of market turns, but results in less market noise and whipsaws.  Stochastic is designed to fluctuate between 0 and 100.  Popular references line are drawn at 20 and 80 with the center line at 50.  Stochastic shows when bulls or bears become stronger or weaker.  This information helps you decide whether bulls or bears are likely to win the current "fight" in the market.
There are generally three types of Stochastic trading signals: 

• Stochastic-Divergences:  A bullish divergence occurs when prices for a particular market fall to a new low, but Stochastic traces a higher bottom than during the previous decline.  When a bullish divergence occurs, this is sign that the sellers are losing the upper hand and it may be time to buy.  Vice versa, a bearish divergence occurs when prices rally to a new swing high, but Stochastic traces a lower top than during its previous rally.  This is a sign that the buyers may be thinning out and it is time to sell. 
• Stochastic-Overbought & Stochastic Oversold: When Stochastic rallies above its upper reference line (80), it shows that the market is overbought.  Overbought means too high, ready to turn down.  When Stochastic falls below its lower reference line, it shows that the market is oversold.  Oversold means too low, ready to turn up.  It is very important to note that the Overbought & Oversold conditions for Stochastics only work well when you have a firm feeling that the market is in a trading range.  If the market is in a trend or establishing a new trend, the Stochastic can be overbought or oversold for a significant period of time.  You do not want to trade against the trend in these situations.\n\nStochastic: Line Direction\nWhen both Stochastic lines (%K and %D) are headed in the same direction, they confirm the short-term trend.  When prices rise and both Stochastic lines rise, the uptrend is likely to continue.  When prices slide and both Stochastic lines fall, the short-term downtrend is likely to continue.

Selecting the Stochastics Indicator on the "Indicators and Symbols" list displays the "Add Indicator" dialog, illustrated below, where you an choose among the different options available to have the Indicator display on the Chart as you'd like it to. Click "OK" to add the Indicator.

The Indicator is displayed within its own window, as shown in the following illustration.