Stochastics cross

This indicator is a variation on the classic stochastics oscillator. Both are momentum indicators. The classic indicator has an overbought line (80) and an oversold (20) line. The stochastics cross indicator does not work with two fixed lines. It uses a smoothed signal line.

The overbought zone is above the line, the oversold zone is below the line. When the price crosses the line from overbought to oversold it is considered negative and short sellers pay attention. When the price crosses the line from oversold to overbought it is considered positive and buyers pay attention. Good traders will always keep in mind the trend of the market when interpreting the stochastics cross.

This example shows a bullish cross followed several hours later by a bearish cross and, again, a bullish cross. The EUR/USD is neutral when the first bullish cross appears. It is likely that the trader will ignore it. When the second bullish cross happens the EUR/USD is still neutral but shows the beginnings of strength; some traders will ignore it, others will take the plunge and buy a long position.