You may have heard of a lagging or leading indicator before. Maybe your friends have tossed around terms like bullish or bearish divergences, oversold or overbought conditions and what signals you should use to enter or exit the market.

While there are many tools that can assist with this, one often overlooked indicator is called the stochastic oscillator. Nothing unique to the world of blockchain, the stochastic is a momentum indicator that compares the closing price of the asset with its high-low range over a certain period of time, it’s a handy tool.

Even better, it works no matter the volatility, even in the fast-moving market for cryptocurrencies. First, the particulars require a bit of math: Slow %K= 100 [Sum of the (C – L14) for the %K Slowing Period / Sum of the (H14 – L14) for the %K Slowing Period] Fortunately, crypto traders need not worry about the calculation part, as the trading platforms and chart softwares process the complex formula and produce a stochastic oscillator, as seen in the chart below.

All you need to know is how to use the oscillator to maximize your efforts. To start with, the indicator can range from 0 to 100.

The area above 80 represents overbought conditions, and the area below 20 indicates oversold conditions. So, price rallies usually stall after the stochastic reaches an overbought zone. Read more from coindesk.com…

thumbnail courtesy of coindesk.com