DEFINITION of 'Worden Stochastics'

The Worden Stochastics indicator represents the percentile rank of the most recent closing price compared to all of the other closing values over a specific timeframe. Traders use the indicator to determine if a particular security is overbought or oversold.

BREAKING DOWN 'Worden Stochastics'

The Worden Stochastic was designed by Peter Worden to recognize new trading range more quickly than traditional stochastics​. Unlike traditional stochastics that incorporate high, low, and closing prices, the Worden Stochastic uses rankings to avoid being influenced by outlier periods and provide a potentially more accurate indication of trading range.

The Worden Stochastic is calculated using the equation: (100 / n – 1) (Rank). N represents the number of closing values in the range, while Rank represents the position of the closing price in a list that’s sorted in ascending order by value.

All stochastic indicators, including the Worden Stochastic, measure the level of the close relative to the range over a period of time. Traders use these readings to determine if a particular security is potentially trading at overbought or oversold levels. In addition, traders may look for bullish or bearish divergences between the security’s price and the stochastic trends, particularly as they break through the midpoint.

In general, prices trading at the high end of a range are considered overbought, while prices at the low end of a range are considered oversold. But, traders should always try to confirm these sentiments with other technical indicators or chart patterns.

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