Stochastic Oscillator

Loading the player...

What is the 'Stochastic Oscillator'

The Stochastic oscillator is a technical momentum indicator that compares a security's closing price to its price range over a given time period. The oscillator's sensitivity to market movements can be reduced by adjusting the time period or by taking a moving average of the result. This indicator is calculated with the following formula:

%K = 100[(C - L14)/(H14 - L14)]

C = the most recent closing price
L14 = the low of the 14 previous trading sessions
H14 = the highest price traded during the same 14-day period.

%D = 3-period moving average of %K

Stochastic Oscillator

BREAKING DOWN 'Stochastic Oscillator'

The theory behind this indicator is that in an upward-trending market, prices tend to close near their high, and during a downward-trending market, prices tend to close near their low. Transaction signals occur when the %K crosses through a three-period moving average called the "%D".

RELATED TERMS
  1. Chande Momentum Oscillator

    A technical momentum indicator invented by the technical analyst ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used ...
  3. Oscillator

    A technical analysis tool that is banded between two extreme ...
  4. Klinger Oscillator

    A technical indicator developed by Stephen Klinger that is used ...
  5. Momentum

    The rate of acceleration of a security's price or volume. The ...
  6. Demarker Indicator

    An indicator used in technical analysis that compares the most ...
Related Articles
  1. Insurance

    Exploring Oscillators and Indicators: Stochastic Oscillator

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com The stochastic oscillator is another well-known momentum indicator used in technical analysis. The idea behind this indicator ...
  2. Fundamental Analysis

    How Do You Use the Stochastic Oscillator?

    A stochastic oscillator is a technical momentum indicator that compares a security's closing price to its price range over a given time period.
  3. Forex Education

    Stochastic Oscillator

    The idea behind this indicator is that the closing prices should predominantly close in the same direction as the prevailing trend.
  4. Trading Strategies

    Beginner's Guide To Stockcharts.com: Indicators

    Indicators are calculations based on price and volume history of a ticker. There are many different indicators, each with a unique formula used to measure such things as volatility, momentum, ...
  5. Trading Strategies

    Technical Analysis: Indicators And Oscillators

    By Cory Janssen, Chad Langager and Casey MurphyIndicators are calculations based on the price and the volume of a security that measure such things as money flow, trends, volatility and momentum. ...
  6. Forex Education

    Combined Forces Power Forex Snap Strategy

    Stochastic and MACD oscillators can help isolate greater opportunities in range-bound markets.
  7. Charts & Patterns

    MACD And Stochastic: A Double-Cross Strategy

    The stochastic oscillator and the moving average convergence divergence (MACD) are two indicators that work well together.
  8. Investing

    Use The Percentage Price Oscillator: The "Elegant Indicator" For Picking Stocks

    Technical analysis is basically an attempt to disprove the credo that "Past performance is not indicative of future results." The percentage price oscillator, which measures momentum, is among ...
  9. Insurance

    Exploring Oscillators and Indicators: Conclusion

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com The goal of every short-term trader is to determine the direction of a given asset's momentum and to attempt to profit from ...
  10. Technical Indicators

    The Top Technical Indicators For Commodities Investing

    Traders can use "the usual suspects" (standard indicators for trend trading) when it comes to choosing indicators for investing in commodities. Here's how.
RELATED FAQS
  1. What are the best technical indicators to complement the Stochastic Oscillator?

    Explore the function of the stochastic oscillator indicator, and discover other technical indicators traders use to complement ... Read Answer >>
  2. What is the difference between fast and slow stochastics in technical analysis?

    The main difference between fast and slow stochastics is summed up in one word: sensitivity. The fast stochastic is more ... Read Answer >>
  3. How do I read and interpret an Stochastic Oscillator?

    Understand the basics of the stochastic oscillator and how analysts and traders use this measure of trend momentum to predicts ... Read Answer >>
  4. How do I use Stochastic Oscillator to create a forex trading strategy?

    Learn about the stochastic oscillator and how to it is used to create an effective forex trade strategy, including how to ... Read Answer >>
  5. What precisely is a stochastic oscillator meant to predict?

    Gain a basic understanding of the stochastic oscillator and how this technical indicator is designed to predict reversals ... Read Answer >>
  6. How do you know where on the oscillator you should make a purchase or sale?

    Learn more about oscillator indicators, technical momentum measures that are used by traders to predict potential market ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center