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One of the most widely used indicators is Stochastics. A question that is oftentimes asked in our live sessions is what is the difference between Slow and Fast Stochastics.
Below is a Daily chart of the USDCHF with both a Slow and Fast Stochastic indicator on it…Slow Stochastics above and Fast Stochastics below.
In principle, the trading rules are the same...a cross above 80 with a close below 80 indicates that momentum on the pair is bearish...to the downside. Conversely, a cross below 20 with a close above 20 indicates bullish momentum.We would advocate the use of the Slow Stochastics from the standpoint that it is more "readable" since it does not react as dramatically to each price action movement, be it major or minor, that the pair may have.
As can be seen on the chart below, Fast Stochastics is much more sensitive to price action and, as such, is often used by shorter term traders.Keep in mind that oscillators such as Stochastics will not “predict” trends. Rather they indicate momentum based on price action.
A trader will identify the trend on the Daily chart and then use an oscillator like Stochastics to time their entry in the direction of the trend on the Daily chart when momentum is shown as being in that direction.So if the daily trend on a pair is bearish as it is on this USDCHF pair, a trader using Stochastics to enter the trade, would enter a short position when Stochastics had been above 80 and then closed below 80.
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