Another vital indicator that is actively used worldwide is Stochastic Oscillator. It helps you to judge if the current trend of the price movement is going to sustain or end soon. The origin of oscillators goes back to 1950s when George Lane created and invented it. Since then the popularity of oscillator is increasing day by day. Nowadays traders all over the world are involving in Forex Trade. Different types of analysis, indicators, tools and charts are used to do well in Forex trading. Stochastic Oscillator is one of them.
Logic behind Oscillator:
The logic behind oscillators is that if the price of a currency is going to fall as compared to the earlier closing price, then it is referred as Downtrend. Similarly if the price of a currency is going to rise above the last closing price then it is an Uptrend. The oscillators reflect the trends of the market conditions.
The Stochastic Oscillator is pretty much keen about the price of a currency and its momentum. You can easily observe that there is a change in the direction of a momentum before the change in the price. As stochastic Oscillators focus on momentum therefore it can predict the change in the price as well. The observation of momentum helps to predict the future trend. It can give you an idea if the current trend is going to end.
You use a scale to get an idea if the financial market is overbought. Similarly it reflects if the market is oversold as well. The scale indicates in numbers from 0-100.
if there are more than 80 stochastic lines is overbought. It means that the price is going to decrease then you should sell in this situation in order to avoid loss.
The market is said to be oversold if there are below 20 stochastic lines.It means that the price is going to rise then it is the best time to buy more. Therefore you should buy in this situation to earn profit. But do not forget that greed is a curse so you need to be smart and do not set all your money on a single trade.