What is the Stochastic Oscillator?

The Stochastic Oscillator is a technical analysis tool created by George Lane in the late ‘50s. The Stochastic Oscillator actually is a momentum indicator that compares current price levels to the High and Low previous price range. The Stochastic Oscillator clearly follows the speed of the momentum. The Stochastic Oscillator aims to indicate price reversals before they actually occur. Additionally it can be used by traders for identifying overbought price and oversold price levels.


Stochastic Oscillator Calculation

Stochastic Oscillator = 100{(Close – Low14)/(High14 - Low14)} = %D

-Low14 = the lowest of the 14 past periods
-High14 = the highest of the 14 past periods
-%D = 3-period moving average of Stochastic Oscillator



Stochastic Oscillator Default Settings

The default setting when using the Stochastic Oscillator is 14 periods (14,3,3). According to each timeframe, Stochastic Oscillator periods may concern daily, weekly, monthly or even intra-day periods.

What is Williams %R?

Williams %R (or %R) is a technical analysis tool (momentum oscillator) created by Larry Williams in 1973. It is used to determine overbought / oversold market levels but may create also buy / sell trading signals.

Williams %R is similar to the Stochastic Oscillator except the fact that Williams %R has an upside down scale and takes values from -100% to 0%. Williams %R measures the close levels relative to the highest high for a certain period. Stochastic Oscillator measures the close levels relative to the lowest low for a certain period.

Williams %R Default Setting

The default setting for Williams %R is 14 periods.




Williams %R Price Range & Explanation

Williams %R values are corresponding to a range from 0% to -100%.

◘ Values from 0% to -20% are indicating overbought market levels

-When Williams %R = 0% then the last close is equal to the highest price level for the period

◘ When Williams %R is at -50% then a new trend is expected to be formed

◘ Values from -80% to -100% are indicating oversold market levels

-When Williams %R = -100% then the last close is equal to the lowest price level for the period

In the following chart we may see the indications of Williams %R (14 periods) on EURUSD related to the indications of Stochastic.


What is a Pivot Point in Forex Trading?

A pivot point in Forex Trading is an important price level for those who are trading using technical analysis. Pivots are may help traders determining the optimal entry/exit levels. In general, when a Forex currency pair trades above the pivot point it is considered as a bullish pair, while when a Forex currency trades below the pivot point it is considered as bearish.


Calculating the Forex Pivot Points

You may calculate the pivot point of a currency pair easily by using the high, the low, and the closing price of this pair during a specific time period. Usually that period is a trading day.

1) The simplest formula to calculate the pivot point is:

Pivot = (High + Low + Close) / 3

2) The pivot point may also include the opening prices of a specific period and thus be calculated by:

Pivot = (High + Low + Close + Open) / 4

3) Additionally you may add weights on each factor, for example:

Pivot = {High + Low + (2*Close) + Open} / 5

**Usually Pivots are calculated within a Daily Chart.