Slow Stochastics for the technical trader can be most effectively used in conjunction with another oscillator such as the RSI (Relative Strength Index). These two indicator by themselves do not become the "holy grail" for the budding forex trader. However, they can be used to observe momentum shifts within charting patterns.

Trading Tip: Multiple indicators correlating within multiple time frames leads to the perfect moment to enter the trade. Time frame overlays with correlating indicators are the sign posts for entry into your forex trade.

The original stochastic indicator, developed by Dr. George Lane, is plotted as two lines, %K line, a fast line, and %D line, a slow line.

The %K is far more sensitive than the %D line. The % D line is the moving average of the %K line. And the %D line triggers the trading signals. "Trigger lines" are drawn are typically drawn at the 80% and 20% levels. A signal may be generated when these lines cross.

The 80% value is often used as an overbought warning signal and the 20% value as an oversold signal.

Signals are generated in three main ways.

When the 80% or 20% lines are crossed.

Crossovers between the %D and the %K lines.

Divergence between the stochastic and the underlying price.

More details are available in the forex homework library for those of you who are highly motivated to become excellent forex traders.