What It Is
The Stochastic Oscillator is a momentum indicator that compares a current price to its recent high-low range to spot if an asset is overbought or oversold.
How It is Works
Prices often close near highs in uptrends and near lows in downtrends. This oscillator helps detect possible trend reversals.
How It’s Calculated
It measures the current close against a range (usually 14 periods) and gives a % value (0–100).
K%: The main line.
%D: A 3-period moving average of %K, used to spot signals.
Reading the Signals
Bullish crossover: %K crosses above %D below 20 = potential buy signal.
Bearish crossover: %K drops below %D above 80 = possible sell signal.
How to Trade with It
- In an uptrend, buy when the oscillator is oversold and starts rising.
- In a downtrend, sell when it’s overbought and starts falling.
Use higher timeframes for trend direction, lower ones for entries. - Changing Settings
Default is 14,3,3, but you can adjust based on your strategy. Faster for short term, slower for long-term trades.
Fast vs Slow Stochastic
- Fast: More responsive, but can give false signals.
- Slow: Smoother and more reliable in trending markets.
Pro Tip
Combine with tools like Moving Averages or Support/Resistance for better accuracy and fewer fake signals.
