Stochastic oscillator

Stochastic oscillator is a <a href="/facts/Momentum_(technical_analysis)/K8wQqzGB">momentum</a> <a href="/facts/Technical_indicator/pnJj7DUo">indicator</a> within <a href="/facts/Technical_analysis/XQ9LlUgk">technical analysis</a> that uses <a href="/facts/Support_and_resistance/Up46EXhP">support and resistance</a> levels as an <a href="/facts/Oscillator_(technical_analysis)/RWRkPadV">oscillator</a>. <a href="/facts/George_Lane_(technical_analysis)/89HM4p1x">George Lane</a> developed this indicator in the late 1950s. The term <a href="/facts/Stochastic/uMbgL94r">stochastic</a> refers to the point of a current price in relation to its price range over a period of time. This method attempts to predict price turning points by comparing the closing price of a security to its price range.
The 5-period stochastic oscillator in a daily timeframe is defined as follows:

%
        K
        =
        100
        ×
        
          
            
              
                P
                r
                i
                c
                e
              
              −
              
                
                  L
                  o
                  w
                
                
                  5
                
              
            
            
              
                
                  H
                  i
                  g
                  h
                
                
                  5
                
              
              −
              
                
                  L
                  o
                  w
                
                
                  5
                
              
            
          
        
      
    
    {\displaystyle \%K=100\times {\frac {\mathrm {Price} -\mathrm {Low} _{5}}{\mathrm {High} _{5}-\mathrm {Low} _{5}}}}

%
 
 D
 
 N
 
 
 =
 
 
 
 %
 
 K
 
 1
 
 
 +
 %
 
 K
 
 2
 
 
 +
 %
 
 K
 
 3
 
 
 +
 .
 .
 .
 %
 
 K
 
 N
 
 
 
 N
 
 
 
 
 {\displaystyle \%D_{N}={\frac {\%K_{1}+\%K_{2}+\%K_{3}+...\%K_{N}}{N}}}

where 
 
 
 
 
 
 H
 i
 g
 h
 
 
 5
 
 
 
 
 {\displaystyle \mathrm {High} _{5}}
 
 and 
 
 
 
 
 
 L
 o
 w
 
 
 5
 
 
 
 
 {\displaystyle \mathrm {Low} _{5}}
 
 are the highest and lowest prices in the last 5 days respectively, while %D is the N-day moving average of %K (the last N values of %K). Usually this is a simple moving average, but can be an exponential moving average for a less standardized weighting for more recent values.
There is only one valid signal in working with %D alone — a divergence between %D and the analyzed security.

Stochastic oscillator open-in-new

Stochastic oscillator