Stochastic is a momentum oscillator

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Tebrau


The Stochastic is a momentum oscillator that will help traders to better time the turning point in the stock market through the usage of two important components. They are the overbought/oversold levels and crossover signals.

To detect an imminent up-move for a stock after a significant decline, it is best to see a bullish crossover signal at the oversold level. Oversold level is defined as a region below the 20% level of the Stochastic oscillator and a bullish crossover is detected when the %D (blue line) crosses up above the smoothed %D (red line) from below.

As seen from the chart on the left, Tebrau had a stunning rally of 17% after such signal was detected on 9th July 2010. Interestingly, this bullish signal on the Stochastic was spotted again on 27th August 2010(last Friday)! The next step is to determine a good trade set-up by identifying the entry price, stop-loss level and profit target for Tebrau.