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Answer Upon - Swing Trading with Stochastics – The Essential Momentum Indicator
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Using Stochastics
The 80% value traditionally is used as an overbought warning signal, while the 20% is used as an oversold warning signal.
The signals are most reliable if you wait until the %K, and %D lines turn upward, below 5% before buying - and in reverse, above 95% before selling.
For swing trading, look to trade the crossover confirmations.
For example, buy when the %K line rises above the %D line, and sell when the %K line falls below the %D line.
Beware of short-term crossovers that may generate
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This article is an introduction to swing trading, and highlights the best timing indicator - to time you swing trades for big profits.
What is Swing Trading?
Swing trading sits in the middle, between day trading, and trend following - and swing trades normally last a few days. The swing trader will enter a position one way, and exit with a profit - and enter a possible position the other way.
The Swing Traders Best Market
For the swing trader, it’s best to trade, when a market is going nowhere fast.
Swing trading does not work in strong bull and bear markets - where price moves strongly in one direction - without a swing in the other direction, the swing trader will lose.
The problem with both swing trading, and long-term trend trading, is that success is based on identifying what type of market we’re looking at - i.e. bull, bear, or a period of consolidation.
Once you’ve identified a market as moving in a sideways channel - then it’s time to look for swing trading opportunities.
The Best Tool for Swing Traders
The best tool by far - the “stochastic indicator” - which is ideal for swing trading. The stochastic indicator is a momentum oscillator, which can warn of strength, or weakness in the market - often in advance of a final turning point.
The logic of the stochastic is based on the assumption, that when a market is rising, it will tend to close near the high - and when a market falls, it tends to close near its lows.
The Calculation
The stochastic oscillator as developed by Dr. George Lane, is plotted as two lines called %K, a fast line and %D, a slow line.
· %K line is more sensitive than %D
· %D line is a moving average of %K
· %D line gives the trading signals
Although this sounds confusing, it’s actually very similar to the plotting of moving averages.
For example, take %K as a fast moving average, and %D as a slow moving average.
The lines are plotted on a 1 to 100 scale. "Trigger" lines are normally drawn on stochastics charts at the 80% and 20% levels – this indicates when markets are overbought, or oversold.
Using Stochastics
The 80% value traditionally is used as an overbought warning signal, while the 20% is used as an oversold warning signal.
The signals are most reliable if you wait until the %K, and %D lines turn upward, below 5% before buying - and in reverse, above 95% before selling.
For swing trading, look to trade the crossover confirmations.
For example, buy when the %K line rises above the %D line, and sell when the %K line falls below the %D line.
Beware of short-term crossovers that may generate f
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The Swing Traders Best Market
For the swing trader, it’s best to trade, when a market is going nowhere fast.
Swing trading does not work in strong bull and bear markets - where price moves strongly in one direction - without a swing in the other direction, the swing trader will lose.
The problem with both swing trading, and long-term trend trading, is that success is based on identifying what type of market we’re looking at - i.e. bull, bear, or a period of consolidation.
Once you’ve identified a market as moving in a sideways channel - then it’s time to look for swing trading opportunities.
The Best Tool for Swing Traders
The best tool by far - the “stochastic indicator” - which is ideal for swing trading. The stochastic indicator is a momentum oscillator, which can warn of strength, or weakness in the market - often in advance of a final turning point.
The logic of the stochastic is based on the assumption, that when a market is rising, it will tend to close near the high - and when a market falls, it tends to close near its lows.
The Calculation
The stochastic oscillator as developed by Dr. George Lane, is plotted as two lines called %K, a fast line and %D, a slow line.
· %K line is more sensitive than %D
· %D line is a moving average of %K
· %D line gives the trading signals
Although this sounds confusing, it’s actually very similar to the plotting of moving averages.
For example, take %K as a fast moving average, and %D as a slow moving average.
The lines are plotted on a 1 to 100 scale. "Trigger" lines are normally drawn on stochastics charts at the 80% and 20% levels – this indicates when markets are overbought, or oversold.
Using Stochastics
The 80% value traditionally is used as an overbought warning signal, while the 20% is used as an oversold warning signal.
The signals are most reliable if you wait until the %K, and %D lines turn upward, below 5% before buying - and in reverse, above 95% before selling.
For swing trading, look to trade the crossover confirmations.
For example, buy when the %K line rises above the %D line, and sell when the %K line falls below the %D line.
Beware of short-term crossovers that may generate
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The Best Tool for Swing Traders
The best tool by far - the “stochastic indicator” - which is ideal for swing trading. The stochastic indicator is a momentum oscillator, which can warn of strength, or weakness in the market - often in advance of a final turning point.
The logic of the stochastic is based on the assumption, that when a market is rising, it will tend to close near the high - and when a market falls, it tends to close near its lows.
The Calculation
The stochastic oscillator as developed by Dr. George Lane, is plotted as two lines called %K, a fast line and %D, a slow line.
· %K line is more sensitive than %D
· %D line is a moving average of %K
· %D line gives the trading signals
Although this sounds confusing, it’s actually very similar to the plotting of moving averages.
For example, take %K as a fast moving average, and %D as a slow moving average.
The lines are plotted on a 1 to 100 scale. "Trigger" lines are normally drawn on stochastics charts at the 80% and 20% levels – this indicates when markets are overbought, or oversold.
Using Stochastics
The 80% value traditionally is used as an overbought warning signal, while the 20% is used as an oversold warning signal.
The signals are most reliable if you wait until the %K, and %D lines turn upward, below 5% before buying - and in reverse, above 95% before selling.
For swing trading, look to trade the crossover confirmations.
For example, buy when the %K line rises above the %D line, and sell when the %K line falls below the %D line.
Beware of short-term crossovers that may generate
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· %K line is more sensitive than %D
· %D line is a moving average of %K
· %D line gives the trading signals
Although this sounds confusing, it’s actually very similar to the plotting of moving averages.
For example, take %K as a fast moving average, and %D as a slow moving average.
The lines are plotted on a 1 to 100 scale. "Trigger" lines are normally drawn on stochastics charts at the 80% and 20% levels – this indicates when markets are overbought, or oversold.
Using Stochastics
The 80% value traditionally is used as an overbought warning signal, while the 20% is used as an oversold warning signal.
The signals are most reliable if you wait until the %K, and %D lines turn upward, below 5% before buying - and in reverse, above 95% before selling.
For swing trading, look to trade the crossover confirmations.
For example, buy when the %K line rises above the %D line, and sell when the %K line falls below the %D line.
Beware of short-term crossovers that may generate
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Using Stochastics
The 80% value traditionally is used as an overbought warning signal, while the 20% is used as an oversold warning signal.
The signals are most reliable if you wait until the %K, and %D lines turn upward, below 5% before buying - and in reverse, above 95% before selling.
For swing trading, look to trade the crossover confirmations.
For example, buy when the %K line rises above the %D line, and sell when the %K line falls below the %D line.
Beware of short-term crossovers that may generate false signals. The best crossover is when the %K line intersects, “after” the peak of the %D line (a right-hand crossover).
Don’t worry if the above confuses you - you don’t need to understand the logic. When you look at stochastics on a chart, all you're looking for is the visual signals - not the calculation behind them.
Do some research and practice, before trying swing trading with stochastics - but if you want an indicator to help you swing trade, and make some big profits - check stochastics out.
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