Momentum is important to understand because it can help traders and investors alike determine where the market might be heading. Stochastic is measured from 0 to 100, and the number is indicated in the form of a percentage, and there are two lines. Typically people use this as a trend change when the lines cross, but as with all indicators they are not one hundred percent accurate.
By itself this may be a little difficult, so maybe you should look at adding some other tools or data plots such as Bollinger Bands or standard deviation, giving you more information on when a trend may begin to change. Stochastic also works in slow meaning it is less sensitive to the movements of the market.
Be sure to test this on a demo account first and understand the data that is used. It uses price movement to generate the indicator and you also need to take a look at fundamental data as this omits those aspects. Of course the market moves to fundamental data but it is only indicated in price movement which is not always correlated.
Stochastic is one of the more widely used momentum indicators so it will be beneficial to understand how it works, even if you may not use it. The Internet has a wonderful amount of material on this and if you still have questions, join a trading group and direct your questions there as they can be very helpful
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Nathan Young is a Senior Member of Macroaxis Editorial Board - US Equity Analysis. With years of experience in the financial sector, Nathan brings a diverse base of knowledge. Specifically, he has in-depth understanding of application of technical and fundamental analysis across different equity instruments. Utilizing SEC filings and technical indicators, Nathan provides a reputable analysis of companies trading in the United States.
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