Many traders are familiar with the Stochastics indicator, which is found on virtually every charting platform and is a popular way of showing overbought and oversold markets. The 15-minute bar chart of the EUR/USD currency pair below includes this indicator in the bottom study, showing this market coming out of oversold conditions.

One issue traders face with the Stochastic or any overbought/oversold indicator is that when using the signals for extremes, you will be going against the market trend. For example, if a market is oversold, it means there has been a strong down trend, and most strong trends are difficult to quickly reverse.

As the case is with every indicator, Stochastics are imperfect – these types of indicators can lead to false signals before the reversal comes. However, this does not mean that they cannot serve a purpose. Overbought / oversold indicators work best when combined with other indicators that show trend changes, because an alignment of two indicators can give a better signal.

We have looked at Heikin-Ashi bars in prior articles, which are a different kind of candlestick bar that filters out a lot of noise and just focuses on the trend. In most cases, Heikin-Ashi bars will keep a trader on the right side of the market.

Read the conclusion of this article at BINARYOPTIONS.NADEX