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Stochastic Oscillator

Classic momentum oscillator overbought oversold classic

A momentum indicator comparing a particular closing price of a security to a range of its prices over a certain period of time.

Usage

Use to identify trend reversals by looking for crossovers and overbought/oversold levels. The %K and %D lines indicate when the momentum is shifting relative to the recent price range.

Background

George Lane developed the Stochastic Oscillator in the 1950s. It is based on the observation that in an uptrend, prices tend to close near their high, and in a downtrend, they tend to close near their low. The sensitivity of the oscillator to market movements is reducible by adjusting the time period or by taking a moving average of the result. — StockCharts ChartSchool

Parameters

  • fastk_period (default: 5): Fast %K period
  • slowk_period (default: 3): Slow %K period
  • slowd_period (default: 3): Slow %D period

Formula

\[ \%K = 100 \times \frac{C - L14}{H14 - L14} \\ \%D = 3\text{-period SMA of } \%K \]

Source