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Stochastic Oscillator

In short

Compares closing price to price range — overbought/oversold momentum indicator

Stochastic measures where today's close is relative to the recent high-low range, on a 0–100 scale. Above 80 means the stock closed near its recent highs (overbought). Below 20 means near recent lows (oversold).

The stochastic oscillator has two lines: %K (fast) and %D (3-day SMA of %K). Crossovers in overbought/oversold zones signal reversals. More sensitive than RSI to price swings. Useful in ranging (non-trending) markets.

Formula

%K = (Close - Lowest Low) ÷ (Highest High - Lowest Low) × 100 over 14 periods

Thresholds

<20
Oversold — watch for reversal
20-50
Bearish zone
50-80
Bullish zone
>80
Overbought — watch for reversal

Related concepts

  • RSI (Relative Strength Index) — RSI scores a stock from 0–100. Above 70 means it's been rising so fast it might be due for a pullback (overbought). Below 30 means it's fallen a lot and could bounce (oversold).
  • Williams %R — Similar to stochastic but inverted. Scaled from 0 to -100. Readings near 0 mean the stock closed near its recent high (overbought). Near -100 means near its recent low (oversold).
  • MACD — MACD compares two moving averages to show momentum. When the fast line crosses above the slow line, it's a buy signal. Cross below = sell signal. Like two runners — when the faster one pulls ahead, momentum is shifting.