Stochastic helps identify turning points as prices swing back and forth within the scope of the more significant trend identified by MACD. Stochastic can be used to time trades effectively, but it needs to be used in conjunction with MACD. If MACD indicates an uptrend, stochastic can be used to time trades in the direction of that trend (up). If MACD indicates a downtrend, stochastic can be used to time trades in the direction of that trend (down). You don't want to trade opposite the direction of the broader trend!

You can see the essential behavioral attributes of stochastic and MACD in the indicator graphs of CTAS. Keep in mind that the MACD indicator is a modified MACD indicator from what you might see in some publications. To learn more about our MACD indicator the click here.

The green bars on the MACD graph indicate that CTAS is in an uptrend. Green means it is time to move into the market: you want to look for timely opportunities to buy the stock.

At the end of April, stochastic dipped below the bottom reference line. This means that CTAS was trading at a lower price compared to the range of prices in the recent past. CTAS was oversold. If you were looking to buy the stock, this was a good opportunity.

The more shallow retracement in late April was also a nice opportunity to trade into CTAS. Stochastic hit the bottom reference line, indicating short-term weakness in the price of the stock.

When you are convinced of a trend's integrity, buying on pullbacks makes sense. Stochastic helps you identify these opportunities.