What is the Stochastic Oscillator?

What is the Stochastic Oscillator: A chart indicator/oscillator used in the technical analysis of financial markets. Its primary purpose is to track market momentum, trend strength, and overbought/oversold conditions.

Category: Technical analysis indicator

How is the Stochastic Oscillator Used: The Stochastic Oscillator, or Stochastics, is a momentum oscillator that compares the most recent closing price of a stock, ETF, or other market/instrument, to a range of its prices over a given period of time. It is most often used to generate and/or confirm trade entry and exit signals, determine overbought/oversold conditions, and find price-oscillator divergences.

What Does the Stochastic Oscillator Consist of: Stochastics is presented as two lines (%K and %D) fluctuating close together and bounded between 0-100. Typically, values above 80 indicate overbought or overvalued conditions, which may signal an impending downside trend reversal or corrective pullback in price. Values below 20 indicate oversold or undervalued conditions, which may signal an impending upside trend reversal or corrective rebound in price. The indicator is usually placed either above or below the price chart.

What Does the Stochastic Oscillator Look Like:

Chart of the Stochastic Oscillator
Chart of the Stochastic Oscillator – Source: TheTechnicals.com and TradingView

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