Everything about the Stochastic oscillator !!!!Hello everyone , as we all know the market action discounts everything :)
A lot of people asked me about the Stochastic oscillator so i prepared this video for you guys explaining it please enjoy .
or if you prefer to reading :
First thing you need to know is that the stochastic oscillator is a momentum index just like the RSI it looks at the price momentum.
A DR.George Lane developed it in the 1950s.
So let us talk about the stochastic oscillator now
it has 2 lines %K (blue color) and %D (Red color)
this is how we use it :
1_ the Stochastic oscillator indicates overbought and oversold state of the market cuz the stochastic is a bounded indicator that means its bounded between 0 and 100 range ( above 80 overbought , bellow 20 oversold )
2_we use it to identify buy and sell signals using crossovers:
• If %K crosses below %D then it’s a sell signal
• If %k crosses above %D then it’s a buy signal
3_Divergance between the price and the Oscillator
We have 2 types of the Stochastic Oscillator:
Fast and slow
The difference between the Fast and Slow stochastic is:
1. The Fast stochastic is more sensitive than the Slow stochastic ( the most common problem for oscillators is the number of false signals that they give so the Slow stochastic tries to solve that problem )
2. Slow stochastic smooths out the %K line by averaging over (d) period
so let me make it simple the %K line in the Slow Stochastic is like the %D in the fast stochastic
Now let us talk about the Formula
%K=100. (C-Ln/Hn-Ln)
Where C is the current closing price
Ln is low in (n) period
Hn is high in (n) period
(n) Is the number of period and the default value for (n) is 15
Now the %D is calculated like this
%D=average %K/ (d) period
(d) Is the number for period and the default value for (d) is 3
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