The Slow Stochastic Oscillator is used to measure momentum by illustrating the location of a given closing price relative to its trading range over a set number of periods.
When the price of an asset trades in a range, traders sometimes want to know if the price closed towards the top, middle or bottom of that range. With this information, they might make assumptions about underlying price momentum.
- Plot the Slow Stochastic Indicator using the BTSE trading platform.
- Readings above 80 sometimes indicate overbought conditions.
- Readings below 20 sometimes indicate oversold conditions.
- A typical sell signal occurs when the oscillator is above 80 and then crosses back below 80.
- A typical buy signal occurs when the oscillator is below 20 and then crossed back above 20.
- Crossover signals can also be used whenever the two lines cross whilst in the overbought or oversold region.
- A bullish divergence occurs when the price makes a lower low, but the Slow Stochastic Oscillator makes a higher low.
- A bearish divergence occurs when price makes a higher high, but the Slow Stochastic Oscillator forms a lower high.
- Using divergences to generate buy /sell signals often produces fewer false signals.
How To Plot The Slow Stochastic Indicator
Step 1: Load up a chart on the BTSE platform.
Step 2: Click on the “Indicators” tab to bring up the indicator drop-down menu. Alternatively, you can just push the “ / ” key.
Step 3: Select the “Stochastic” option from the menu.
Step 4: Click the “Settings” button on the Stochastic Oscillator.
Step 5: Click the “Inputs” tab.
Step 6: Change “Smoothk” from 1 to 3.
Note: The difference between the Slow and Fast Stochastic Oscillator is the %K slowing period of 3. Setting this to 1 will give you the Fast Stochastic Oscillator.
The main difference between the Slow and Fast Stochastic Oscillator is the sensitivity of the indicator. The Fast Stochastic will generate earlier signals but also give more false signals.
Step 7: Use the settings tab to select desired colours and then sit back and marvel at your newly generated Slow Stochastic Oscillator.
How To Trade Using The Slow Stochastic Oscillator
There are three popular ways to trade using the Slow Stochastic Oscillator:
- The most simple method is to sell when the oscillator crosses from above to below 80 and buy when the oscillator crosses from below to above 20.
- The crossover methods wait for the two oscillator lines to cross when above 80 or below 20.
- A buy signal is generated when the faster line (blue) crosses from below to above the slower line (white) whilst under the 20 level.
- A sell signal is generated when the faster line (blue) crosses from above to below the slower line (white) whilst above the 80 level.
- The divergence method trades less frequently and generates less false signals.
- A buy signal occurs when the price makes a lower low, but the Slow Stochastic Oscillator makes a higher low.
- A sell signal occurs when the price makes a higher high, but the Slow Stochastic Oscillator forms a lower high.
Here is a cherry-picked example of a buy signal generated by the divergence method:
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