• In an uptrend, as prices rise, the closing price rises to the top of the recent price range.
• In a downtrend, as prices fall, the closing price drops to the bottom of the recent price range.

In charting, the stochastic oscillator uses two lines to give a single signal. The major line (%K) is usually depicted as a solid line. The second line (%D) is often depicted as a dotted line and represents a 3-day moving average of %K. Futures traders watch the %D line closely for major trading signals. When %D crosses %K, the intersection of the two lines indicate buy/sell points. Use the following rule of thumb to read stochastics signals:

• When both the %K and %D lines are below 20 and the faster %K line crosses above the slower %D line, BUY.
• When both lines are above 80 and the %K line crosses under the %D line, SELL.

The two lines rise and fall in tandem between 0 and 100. Readings above 80 are overbought; those below 20 are oversold. Savvy futures traders will watch for divergences which can indicate coming price trends over the next few time periods.

Futures traders value stochastics for its accurate findings. Easily understood, even by novice traders, stochastics provide valuable indicators for making good entry and exit decisions.

There are other charting techniques that provide futures traders with more information than candlesticks. Their allure lies in their ability to visually show traders which way the market is trending — bull or bear — and which way it is about to trend. Knowing which group controls the market — and, more importantly, which group is about to control the market — gives futures traders a significant trading advantage. Successful futures traders consistently trade with the market trend. Basically, in a bull market, you want to buy. You sell in a bear market. Knowing which way the market is going to trend allows you to enter and exit the market at the front of the pack where the profits are greatest.

The strictly vertical Japanese candlestick is simply easier to interpret at a glance than the armed column of the Western bar chart. Candlesticks emphasize the relationship between the opening and closing prices with a cylindrical body, called the real body. The top and bottom of the cylinder represent the open and close with the two wicks –one extending from the top, one from the bottom of the cylinder — indicating the extreme high and low prices of the period. It is the range between the opening and closing prices more than the prices themselves that tells a trader whether the bears or bulls are in control of the market. Candlestick charts make this instantly obvious.

The color of the cylinder also provides futures traders with immediate information about market movement. When the bulls are leading the market, the real body (cylinder) will be white. White is a light color, so think of it as also being light in weight, of rising upward. Therefore, any white or light-colored candlestick represents an uptrending, or bull, market that favors buyers. Conversely, when the bears lead the market, the real body will be black. Think of black as a dark, heavy, sinking color. Black or dark colored candlesticks represent a downtrending, or bear, market that favors sellers. A candlestick that looks like a Western bar with no real body, indicates a market that opened and closed at the same price. In other words, the bulls and bears fought to a tie.