This kind of indicators computes moves back and forth between two points. These indicators usually signal “buy” or “sell” signals.
Oscillators are used as either as overbought/oversold indicator. The show buy signals when oscillators move below certain threshold, and then becomes an ok back above that threshold. A sell would therefore be signaled when they move above another threshold and crosses below that threshold. Oscillators could provide mouth watery entry and exit points. This gives them a good potential to provide high percentage winnings. One of their flaws remains that they could be stuck at one of their extremes or could yet not get in some tends.
The Stochastic is basically plotted as two lines: %D is the slow line signal while the %K is the main fast line signal. You have three different styles of generating signals on the using the stochastics.
Divergence: Getting divergence between stochastic oscillators can prove to be very vital when it comes to identifying oversold/overbought conditions in price activities. Trade long on classic bullish divergence and trade short on classic bearish divergence.
Crossovers: a buy signal is signaled when the %K line crosses above the %D line while we see a sell being signaled when the %K line crosses below the %D line.
Overbought/Oversold Conditions: This is also a way of knowing potential trends, when this oscillator declines below 20% and rises above that level it signals a buy, while when it rises above the 80% level and declines below it gives a go for a sell signal.