Technical Indicator: The Stochastic Oscillator
Appended below is a ~ 7 mins explanation on Stochastic Oscillator, enjoy:
Stockastic Oscillator – Momentum Oscillator
- Compares an financial instrument’s closing price to its price range over a period of time, with the premise that in rising market stocks will close near their highs, while in a falling market they will close near their lows – to keep moving towards higher high in an uptrend and lower lows in a downtrend.
* Three different types of Stockastic Oscillator – Fast, Slow and Full
* Slow Stockastic Oscillator is used most frequently
* Stochastic Oscillator:
* %K and %D
* %K rising ==> momentum of market is increasing and vice-versa
* %D is 5 simple moving average of %K
* Range between 0 – 100 (banded oscillator, upper end range marked by 80 and lower end range marked by 20.
* Trade Signals: 1. Overbought and Oversold. 2. Crossovers 3. Divergence
Key Points:
* Like other indicators, the stochastic oscillator would also have false signal from time to time.
* Important to use in conjunction with other indicators to get a better overall picture
