Fxbasic

How to Trade Forex Using the Stochastic Indicator

The Stochastic technical indicator tells us when the market is overbought or oversold. The Stochastic is scaled from 0 to 100.

When the Stochastic lines are above 80 (the red dotted line in the chart above), then it means the market is overbought.

When the Stochastic lines are below 20 (the blue dotted line), then it means that the market is possibly oversold.

As a rule of thumb, we buy when the market is oversold, and we sell when the market is possibly overbought.

Many forex traders use the Stochastic in different ways, but the main purpose of the indicator is to show us where the market conditions could be possibly overbought or oversold.

Keep in mind that Stochastic can remain above 80 or below 20 for long periods of time, so just because the indicator says “overbought” doesn’t mean you should blindly sell!

The same thing if you see “oversold”, it doesn’t mean you should automatically start buying!

Next one *Base and Quote currency*

Before that let me define what *currency pair* is.

What Is a Currency Pair?
A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency.

Let's take *EURUSD* as an example

Ie The first Currrency pair on that image that I uploaded above

EURO is stronger than the US Dollars.( I believe we all know that)

Hence EURO is the Base while USD is the Quote

*....read that again and let it sink*

Another example is

*USDJPY*

The 3rd pair in that image above

In this second example

USDollars is the Base while Japanese Yen Is the Quote
.

Because the USD is stronger than the Japanese Yen