Stochastic oscillators are one of the most useful tools for binary options traders looking for reversals in the market. Typically, a stochastic oscillator will show a trader that when price has entered the ‘overbought’ area of over 70 on the indicator index, or the ‘oversold’ area below 30, the underlying asset is very likely due a price reversal.

stochastic

 

Stochastic oscillators Cross

The most important thing regarding the stochastic oscillator is to look at the cross between those two lines and see if the market is in the Overbought(70) or Oversold(30) Territory. If it is, than it’s time for you to react. You can reduce the tool’s sensitivity if you change the time period, so that you can observe the market in different ways and different time frames, but the principle remains the same.

Stochastic oscillators Trading

For Sell – When the stochastic oscillator is in the Overbought(70) territory we will buy a put option as we are expecting that from here the price can not go up any more and its likely to correct down.

For Buy – When the stochastic oscillator is in the Oversold(30) territory we will buy a call option as we are expecting that from here the price can not go down any more and its likely to goes up.

The fact that the stochastic oscillator is very easy to understand makes it probably the most popular tool in the world of binary options trading..

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