In this video, the sarcastic oscillator, so sarcastic oscillator is another oscillator that is in
its own window, and I'll go ahead and pop that up here.
Basically, what it does is it measures a couple of moving averages and whether we are overbought or
oversold, so it's a lot like the RSI.
We have above 80 and a crossover gives you an overbought signal.
Below 20 and a crossover gives you an oversold signal.
There is price divergence, and I'll walk through that as well.
However, there's a caveat with Stochastics as they are horrible in a trend.
And they are.
Much more reliable in a range bound market, because the idea is that all things being equal over the
last X amount of periods, in this case 14, there's a high and a low and you just kind of bounce back
and forth.
The reality is markets do consolidate.
Depending on the market, anywhere from 70 to 80 percent of the time, so the stochastic oscillator
is a good indicator, you just have to make sure you're using it at the right time.
So what I will do, a lot of traders will do this is they'll put a moving average up.
This is a 50 day amay and you can see that it's drifting slightly lower here, but it's more sideways
than it was here.
So what does this tell us?
This tells us that we will get a lot of false signals out of this, the Catholic in this uptrend.
But once we become a little bit more range bound and you can clearly see that there's a couple of areas
that were trading between somewhere around 145 and maybe 130 or so.
Now, you can start to use this to Catholic oscillator and you'll see that the moving averages crossed
over in the overbought area right at the top, we crossed over here.
And that's technically not a buy signal because.
It wasn't underneath the 20.
There's one here, and you can see that's when we started the consolidation at that point, you can
see that the EMA was starting to roll over, flatten out a little bit.
So we've had to signal that this was awfully close.
You could have perhaps been talked into it.
But as you can see, technically, it's not there, so that sarcastic is a little slower than some other
signals, our signal producing indicators, and that in and of itself can and will keep you out of trouble
sometimes.
So let's take a look at let's see let's do Ford Motor here.
And you can see that we're in a trend.
Even though we've popped above, now that we're sideways for this time frame, you can see that we just
kind of went sideways for a few days and we crossed there.
That technically was a cell signal.
This was more or less a sideways market for a little while, at least based upon the moving average,
and you can see that we did get the one signal.
This area here, we got a signal here, we did cross over just barely.
This is an excellent signal we crossed over right here.
And we crossed right here.
Telling you to either get out or go long, because you would have been short.
This was a cell signal.
And that was a closing signal because by then the moving average started to drift lower and you did
make a fresh new low.
So at that point, you have to assume that you're probably not going to continue much higher on the
rebound.
There is price divergence, as you can see.
And that, of course, is a signal, so with the line going basically sideways, getting a little overboard,
crossing over there makes sense.
And we did, in fact, go lower over the longer term.
And that's the thing about the stochastic oscillator that I would point out.
When you do get price divergence, it tends to be a little bit more of a longer term signal by the very
nature of the indicator itself.
But again, you have to be very careful.
You have to make sure that you're using it in a range bound market like this.
You know, there's a cell signal there.
There was a buy signal right before it.
So a couple of decent trade.
Most people will use these moving averages to give you an idea as to whether we are sideways.
Another thing that, of course, helps is if you're at support and resistance and in an area that has
too strong levels of support and another level of resistance to conflicting areas, typically you will
have consolidation anyway.
So that should get you looking at the stochastic as well.