Candlestick Charting For Dummies®

Using the Stochastic Indicator and Bearish Candlestick Patterns for Shorting

If you’re interested in another reliable technical indicator that you can combine with bearish candlestick patterns to help you in your short trades, look no farther than the stochastic indicator. The stochastic indicator can be a very useful trading tool when you’re trying to determine when a security is overbought or oversold. You can read all about the stochastic indicator in Chapter 11, but for this discussion just keep in mind the following points:

The stochastic indicator includes two components: the fast and slow stochastic.

The fast and slow stochastics oscillate between 0 and 100.

When the fast stochastic is under the slow stochastic, there’s a downtrend in place.

When the fast stochastic is above the slow stochastic, there’s an uptrend in place.

The stochastic indicator can be based on a variety of look back periods. In this chapter my examples have a 14-period look back, which you’ll find ...