Trading the Slow Stochastics for profits

The video provides an explanation of the stochastics and reviews a few strategies that can be used to trade the slow stochastics, which is the most popular type of stochastic.  The %K line indicates the amount of momentum in the market; when it is moving up, momentum is increasing in the market.  Conversely, when the slow stochastics are moving lower, momentum is waning in the market.  The %D line is the simple moving average of the %K line and smoothes out the %K line.  The crossover of the %K and %D can be used as a buy or sell trigger.

Traders use the slow stochastics by trading overbought (80) and oversold levels (20).  When the %K crosses up through the %D when the oscillator is below 20, a buy signal could be taken.  On the other hand, when the %K crosses down through the %D above 80, a sell signal is generated. 

Secondly, traders will look for divergences between the oscillator and the market.  For example, if price continues higher but the slow stochastics continue to set lower highs, a change of trend may be at hand.