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Glossary · Indicators

Stochastic oscillator

A momentum oscillator (0–100) showing where the close sits within the recent high-low range, with a %K line and a smoothed %D line.

By Sky Trade editorial teamUpdated

The stochastic oscillator, popularised by George Lane, answers one question: where did the price close relative to its recent range? %K = (close − lowest low) ÷ (highest high − lowest low) × 100, usually over 14 periods. A reading of 90 means the close is near the top of the range, 10 near the bottom. %D is a moving average of %K, typically over 3 periods, and crosses between the two lines are watched as signals.

The usual thresholds are 80 and 20 for overbought and oversold. Like any oscillator, Stochastic gives useful turns in ranges and misleading ones in trends, where it can sit above 80 while price keeps rising.

Because it depends on the high-low range, it can swing wildly when that range is tiny: a quiet market can produce extreme readings from a few pips of movement. The fast, slow and full versions differ only in how much smoothing they apply.

Common practice is to take Stochastic signals in the direction of the higher-timeframe trend and to wait for %K to cross %D outside the extreme zone. Sky Trade includes Stochastic among its oscillators. See the Stochastic guide and the oscillator entry.

Example

Over 14 candles the high is 1.0880 and the low 1.0840. With a close at 1.0870, %K = (1.0870 − 1.0840) ÷ (1.0880 − 1.0840) × 100 = 75.

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