How to Make Money Trading with Candlestick Charts

In short, stochastics give you the relative
position of the price as compared to the

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range of the past N trading days
. If the
price closes towards the high end of the
period, then the stochastics will be closer to
100. If the price closes towards the lower
end of the range in that time period, then the
stochastics will be a number closer to 0. 
In
general, any reading above 80 for the
stochastics indicates an overbought
condition. Any reading below 20 suggests
that the shares are currently oversold.
The stochastics indicator can be plotted by
most of the charting software found online.
A question often arises as to what settings
should be used to display the stochastics. In
other words, what is the value of “N”
mentioned above? I usually use a value of

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12. Some traders use 14. The smaller the
time period you choose, the more volatile the
indicator will be. So, if you want to get rapid
buy and sell signals, you would choose, say,
5. For swing trading, where you hold a
position for a few days to a few weeks, you
could choose 12 or 14. The correct
procedure to get this number is by trial and
error. Your goal is to see where the price
reversed in the past and the corresponding
stochastic setting. Those need to match up.
The reversal from a high needs to match with
stochastics in overbought conditions while
the reversal from the bottom needs to match
with oversold conditions of stochastics.
The other parameter you put in is the number
of days to smooth out the %K. Generally, 3

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days works very well. But you are free to
experiment with other numbers.