Stochastic Oscillator

How Stochastic Oscillator is calculated

It plots where the latest close falls inside the high-to-low range of a lookback, usually 14 periods, as the %K line. A short moving average of %K, called %D, is added as a signal line. Readings above 80 are overbought and below 20 oversold.

How Stochastic Oscillator is used

• →Watch the 80 and 20 levels, and use %K crossing %D as a momentum signal.
• →Look for divergence between the oscillator and price at extremes.
• →It works best in ranging markets and gives more false signals in strong trends.
• →Pair it with trend context so you fade extremes only when it fits the bigger picture.

Common mistakes

• ✕Selling every reading above 80 in a strong uptrend, where it can stay pinned high.
• ✕Trading crossovers in the middle of the range where they mean little.