Crypto Trading 101: Stochastic Oscillators and Price Momentum

You may have heard of a lagging or leading indicator before.

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.

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.

To start with, the indicator can range from 0 to 100.

Price rallies usually stall after the stochastic reaches an overbought zone.

The above chart shows, bitcoin dropped 11% after the stochastic generated a sell signal on June 9.

Further, it rallied more than 8 percent after the stochastic charted a buy signal on June 29.

Note that stochastic tends to work best in broad trading ranges or slow-moving trends.

The difference between a leading indicator such as the stochastic or Relative Strength Index and a lagging indicator such as Moving Averages or Bollinger Bands is that the leading indicators precede price movements, while lagging indicators follow price movements.