Oil trading alert: Stochastic signals
Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective.
This indicator has proven itself many times as something that can really indicate the next move in the market – however, it has to be applied carefully, as not all ways in which it works are really profitable. We have just seen 2 signals from this important indicator – one bullish (based on daily closing prices) and one bearish (based on weekly closing prices). Which should one focus on?
Generally, the more long-term the nature of a given signal or trend line is, the more important it is. This is particularly true for the Stochastic indicator.
It is not only the case with gold and mining stocks that the Stochastic indicator based on weekly prices is much more reliable than the one based on daily prices (by the way, we have just published general gold trading tips in the Research section on our website, which you might find useful) – it is the case also with the crude oil market.
Let’s see how well the Stochastic indicator calculated using daily closing prices performed.