A:

Given the hundreds of indicators that are available to traders, finding the appropriate technical tools to use in day trading can be a difficult task. The good news is that the majority of indicators can be used in day trading simply by adjusting the number of time periods used in creating the indicator. Most traders are accustomed to seeing each indicator use each daily close as one period in the calculation, but they quickly forget that the interpretation remains the same whether the data used in one period is equal to a day, a minute, a week, a month or a quarter.

One indicator chosen by many traders is the fast or slow stochastic oscillator. (To learn more, see What is the difference between fast and slow stochastics?.) The slow stochastic is one of the most popular indicators used by day traders because it reduces the chance of entering a position based on a false signal. In general, a slow stochastic measures the relative position of the latest closing price to the high and low over the past 14 periods. When using this indicator, the main assumption is that the price of an asset will trade near the top of the range in an uptrend and near the bottom in a downtrend. This indicator is very effective when used by day traders, but one problem that may arise is that some charting services might not include it as an option on their charts. If this is the case for you, you may want to consider re-evaluating which charting service you use.

For more information on the stochastic indicator, see Getting To Know Oscillators - Part 3.

RELATED FAQS
  1. What is the difference between fast and slow stochastics in technical analysis?

    The main difference between fast and slow stochastics is summed up in one word: sensitivity. The fast stochastic is more ... Read Answer >>
  2. What are the best technical indicators to complement the Stochastic Oscillator?

    Explore the function of the stochastic oscillator indicator, and discover other technical indicators traders use to complement ... Read Answer >>
  3. How do I read and interpret an Stochastic Oscillator?

    Understand the basics of the stochastic oscillator and how analysts and traders use this measure of trend momentum to predicts ... Read Answer >>
  4. How does a swing trader use the stochastic oscillator?

    Learn how the stochastic oscillator is used as a momentum indicator in swing trading, and understand how the oscillator is ... Read Answer >>
  5. How can a business eliminate deadweight loss from government regulation?

    Understand the basics of the stochastic oscillator and how to use this momentum metric in tandem with other indicators to ... Read Answer >>
  6. How do I use Stochastic Oscillator to create a forex trading strategy?

    Learn about the stochastic oscillator and how to it is used to create an effective forex trade strategy, including how to ... Read Answer >>
Related Articles
  1. Insurance

    Exploring Oscillators and Indicators: Stochastic Oscillator

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com The stochastic oscillator is another well-known momentum indicator used in technical analysis. The idea behind this indicator ...
  2. Trading Strategies

    Know the Forces At Play Behind The Buy/Sell Cycles

    Weekly Stochastics uncovers patterns of buying and selling pressure that can be predicted and capitalized upon by observant investors and traders.
  3. Trading Strategies

    Do You Have The Right Settings On Your Stochastic?

    Use these helpful tips to unlock Stochastics' full potential.
  4. Forex Education

    Combined Forces Power Forex Snap Strategy

    Stochastic and MACD oscillators can help isolate greater opportunities in range-bound markets.
  5. Technical Indicators

    How to Use Trading Indicators Effectively

    Careful and effective use of technical indicators can improve your odds of finding an investment’s best entry and exit points.
  6. Active Trading

    Using Trading Indicators Effectively

    Select multiple indicators, avoid information overload and optimize indicators to effectively use technical analysis tools.
  7. Charts & Patterns

    MACD And Stochastic: A Double-Cross Strategy

    The stochastic oscillator and the moving average convergence divergence (MACD) are two indicators that work well together.
  8. Trading Strategies

    How To Best Analyze Relative Strength

    Relative strength indicators measure performance between similar instruments, uncovering opportunities that can translate into reliable profits.
  9. Technical Indicators

    The Top Technical Indicators For Commodities Investing

    Traders can use "the usual suspects" (standard indicators for trend trading) when it comes to choosing indicators for investing in commodities. Here's how.
  10. Technical Indicators

    Using Technical Indicators To Develop Trading Strategies

    Unfortunately, there is no perfect investment strategy that will guarantee success, but you can find the indicators and strategies that will work best for your position.
RELATED TERMS
  1. Stochastic Oscillator

    A technical momentum indicator that compares a security's closing ...
  2. Technical Indicator

    Any class of metrics whose value is derived from generic price ...
  3. StochRSI

    An indicator used in technical analysis that ranges between zero ...
  4. Indicator

    Indicators are statistics used to measure current conditions ...
  5. Confirmation

    The use of an additional indicator or indicators to substantiate ...
  6. Stochastic Volatility - SV

    A statistical method in mathematical finance in which volatility ...
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center