In this journal entry, I’m going to demonstrate how to use stochastic oscillator for binary options trades. The stochastic oscillator is a quite popular indicator among beginners and advanced traders. It is very easy to use and give useful insights into momentum and when it is on the verge of reversing to help identify entry and exit points. So let’s examine in more detail how this indicator works and investigate step by step how to apply it in trades and grow our investments.

Stochastics Oscillator trading summary

The stochastic oscillator is comprising the difference between a closing price and the high and low price during the same period. This indicator is calculated with consideration the price action of the last 14 periods. Typically, the oscillator varies within a range around the mid-point denoted as the 50 level. The full range between the top and bottom is 100. Also, it is important to note that 20 is a key level of range downside, and 80 is a key level of range upside. Stochastics is measured with two lines: %K (Blue line) and the %D (Red line). You can find here how mathematically those lines looks. Fortunately, the charting software does all these calculations and make the whole technical process much easier. %D line is particularly important since it is used to identify bullish or bearish signals depending on its position in the range. If the line is above 80 level, this indicates the possibility of overbought and if the line is below 20 level, it indicates that the asset may be oversold.

USD/JPY

The first operation was carried out with the USD/JPY currency pair. As we can see on the chart, stochastics oscillator crossed upside level of the range. Lines of stochastics oscillator are in the overbought territory. It is a good time to buy a ‘put’ option.  

Ultimately oscillator indicated the correct price movement. I invested $100 with 75% profit which resulted in $75 in profit.