Stochastic Oscillator Bitcoin Analysis & Stochastic Oscillator Trading Signals

Developed by George C. Lane

The Stochastic Oscillator is a momentum indicator - it shows the relation between the current closing bitcoin price relative to the high & low range over a given number of n periods. Oscillator uses a scale of 0-100 to draw its values.

This Oscillator is based on the theory that in an up trend market the bitcoin price closes near the high of the bitcoin price range & in a downwards trending market the bitcoin price will close near the low of the bitcoin price range.

The Stochastic Lines are drawn as 2 lines- %K & %D.

• Fast line %K is the main
• Slow line %D is the signal

3 Types of Stochastics BTCUSD Oscillators: Fast, Slow & Full Stochastics

There are 3 types are: fast, slow & full Stochastic. 3 indicators look at a given chart period for example the 14-day period, & measures how the bitcoin price of today’s close compares to the high/low range of the time period that is being used to calculate the stochastic.

This oscillator works on the principle that:

• In an upward trend, bitcoin price tends to close at the high of the candlestick.
• In a downward trend, bitcoin price tends to close at the low of the candlestick.

This indicator shows the momentum of the Bitcoin trends, & identifies the times when a market is overbought or oversold.

Bitcoin Analysis & Generating Trading Signals

Most common techniques used for technical analysis of Stochastic Oscillators to generate cryptocurrency signals are cross overs signals, divergence trading signals and over bought oversold areas. Following are the techniques used for generating signals

Bitcoin Trading Crossover Trading Signals

Buy signal - % K line crosses above the %D line (both lines moving upwards)

Sell signal - %K line crosses below %D line (both lines moving downwards)

50-level Crossover:

Buy signal - when stochastic lines cross above 50 a buy bitcoin signal is generated.

Sell signal - when stochastic lines cross below 50 a sell bitcoin signal is generated.

Divergence BTCUSD Trading

Stochastic is also used to look for divergences between this indicator & the bitcoin price.

This is used to determine potential trend reversal bitcoin signals.

Upwards/rising trend reversal - identified by a classic bearish divergence

Bitcoin Trend reversal - identified by a classic bearish divergence

Downward/descending trend reversal - identified by a classic bullish divergence

Bitcoin Trend reversal - identified by a classic bullish divergence

Overbought/Oversold Levels on Indicator

Stochastic is mainly used to identify potential overbought and oversold conditions in bitcoin price movements.

• Over-bought values greater than 70 level - A sell cryptocurrency signal occurs when the oscillator rises above 70% and then falls below this level.

Overbought - Values Greater 70

• Oversold values less than 30 level - a buy cryptocurrency signal is generated when the oscillator goes below 30% and then rises above this level.

Oversold - Values Less Than 30

Trades are generated when Stochastic Oscillator crosses these levels. However, overbought/oversold levels are prone to whipsaws especially when the btcusd market is trending upward or downwards.