The Stochastic: My Personal Guide to this Controversial Oscillator

Fuck the stochastic! As a trader who has been using this indicator for years, I can tell you that it is one of those tools that you either love or hate. This momentum oscillator moves between 0 and 100, and supposedly when it goes above 80 it's "overbought" and when it drops below 20 it's "oversold". But don't believe everything you read.

I have seen many newcomers ruin themselves by blindly following these signals. The market can remain "oversold" for weeks while prices continue to rise, and there you are, selling prematurely because a little mathematical indicator suggested it to you.

The formula is simple: %K = [(Current close - Lowest low) / (Highest high - Lowest low)] × 100. Then there is %D, a 3-period moving average of %K that supposedly "smooths" the signals.

In my experience, premium trading platforms offer various versions of the stochastic. The "complete" uses extreme highs and lows, while the "slow" applies more smoothing. What's my opinion? The slow avoids some false signals, but it makes you enter late into important movements.

Do you know what the most absurd thing is? That the "technical" experts sell this indicator as a kind of mathematical oracle, when in reality the current market conditions can make it completely useless. In cryptocurrencies, where manipulation is the order of the day, I have seen the stochastic give completely contrary signals to the final outcome.

I'm not saying it's useless - I use it myself. But it's part of a toolkit, it's not a magic bullet. And please, forget about those perfect entries and exits that they promise you in the free webinars.

If you want to learn more about this type of indicators, there are many resources available. However, I would recommend starting by understanding that no technical indicator will save you if you do not understand what really moves the markets.