Technical Analysis Basics – Stochastic indicators

Relative Strength and Stochastic indicators are also used by traders to measure mean reversion. These technical indicators both measure the speed of short-term movement in the market relative to long-term movement. Stochastic indicators largely rely on the principle that in an up-trending market stocks will most likely close near their highs and in a down-trending market they will close near their lows. These indicators create an index allowing traders to identify whether a market is overbought or oversold.

Technical indicators are generally very popular amongst traders. This popularity stems largely from the reasoning that ‘volume generates movement’. In other words, the more investors trade in a particular direction, the more that direction will continue.

See the video below for an explanation and trading using Stochastic indicators

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