Stochastic (Stoch)

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.

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‍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 is [(Current Close - Lowest Low) / (Highest High - Lowest Low)] × 100
  
  • %K = [(Close - Lowest Low(n)) / (Highest High(n) - Lowest Low(n))] × 100  
• %D is a 3-period SMA of %K.  
  
  • %D=SMA(%K, 3)

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

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