What is it?
The Stochastic Oscillator compares an asset’s closing price to its price range over a period, helping identify overbought or oversold conditions. It’s like RSI but focuses on price positioning.

How is it used?

  • Overbought/oversold: Buy when %K crosses above 20; sell when it crosses below 80.
  • Crossovers: %K crossing above %D is bullish; crossing below is bearish.
  • Divergence: Divergence between price and Stochastic can signal reversals.

How is it calculated?

  • %K: [(Current Close - Lowest Low) / (Highest High - Lowest Low)] × 100
  • %D: 3-period SMA of %K.

%K = [(Close - Lowest Low(n)) / (Highest High(n) - Lowest Low(n))] × 100  

%D = SMA(%K, 3)  

Typically uses a 14-period lookback. Values above 80 are overbought; below 20 are oversold.

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