7 Steps (or Less) on How To Use Stochastics

• June 7, 2006
• TradingMarkets Editors

Strategy 1:
Oversold/Overbought

1. Set your

stochastics for 8,3,3 and use 80 for
overbought and
20 for oversold.

2. Buy when %K and %D are oversold (below 20). Exit your position when
stochastics become overbought.

3. Sell when %K and %D are overbought (above 80). Exit your position when
stochastics become oversold.

Strategy 2: Crossover

4. Buy when %K and %D are oversold (below 20) and
then rise above this level. Exit your position when stochastics become
overbought.

5. Sell when %K and %D are overbought (above 80) and then fall back below this
level. Exit your position when stochastics become oversold.

 

Strategy 3: Positive/Negative
Divergence

6. Buy when you see positive stochastic
divergence
(price lower, stochastics higher). Exit your position when stochastics become
overbought.

7. Sell when you see negative stochastic
divergence (price higher, stochastics lower). Exit your position when
stochastics become oversold.

Here is

another good trading technique using stochastics.