**What is Stochastic Oscillator?**

**. By comparing a security's closing price on a given day with its price history, it**

*displays a security's price sensitivity to the time span over which the price sensitivity was measured is known as a stochastic oscillator indicator, or simply stochastic***.**

*displays levels of overbought and oversold conditions***.**

*It uses a 0–100 defined range of numbers to produce trading signals for overbought and oversold conditions*

*overbought and oversold indications is a stochastic oscillator.*

*created in the 1950s, this momentum indicator is widely used.***.**

*they often fluctuate around a mean level***, and**

*overbought if the measurement is over 80*

*oversold if it is below 20.***Understanding Stochastic Oscillator:**

**These do not, however, automatically portend an imminent reversal; strong trends have the**

*20 are often regarded as oversold, while values over 80 as being in the overbought zone.***. Traders could instead watch for variations in the stochastic oscillator as a signal about potential future adjustments in the trend.**

*ability to sustain overbought or oversold circumstances for a lengthy length of time***. The junction of these two lines is regarded as an indication that a reversal may be imminent since price is believed to follow momentum and shows a significant daily movement in momentum.**

*one represents the oscillator's three-day simple moving average and the other its actual value for each session***Formula for Stochastic Oscillator:**

%K = (Current Close - Lowest Low)/(Highest High - Lowest Low) * 100

%D = 3-day SMA of %K

Lowest Low = lowest low for the look-back period

Highest High = highest high for the look-back period

%K is multiplied by 100 to move the decimal point two places

**How to Aanlyse Stochastic Oscillator:**

*Stochastic 14 periods/price candles.***A HIGH STOCHASTIC NUMBER**

**. This is wrong and very dangerous**

*Stochastic is below 20, the price is considered oversold. And what traders then conclude is that an oversold market has a higher chance of going down and vice versa***and not that you should get ready to short the market.**

*A high Stochastic indicates that the price is able to close near the top and kept pushing higher. A trend in which the Stochastic stays above 80 for a long time signals that momentum is high***, while the trends kept on going.**

*the Stochastic entered “overbought” (above 80), “oversold” (below 20) and stayed there for quite some time***that it is ready to turn around.**

*will quickly run into problems when you trade this way. A high Stochastic value shows that the trend has strong momentum and NOT***Breakout trading :**When you see that the Stochastic is suddenly accelerating in one direction and the

**even better**

*two Stochastic bands are widening, it can signal the start of a new trend. If you can also spot a breakout out of sideways range on your price chart,***Trend following:**As long as the Stochastic is

**it confirms a**

*above 80***. And a Stochastic**

*strong bullish trend***points to a**

*below 20***.**

*strong bearish trend***Strong trends:**When the Stochastic is in the

**, don’t fight the trend but try to hold on to your trades and stick with the trend.**

*"oversold/overbought area"***Trend reversals:**When the Stochastic is

**. Especially when the indicator signal is followed by**

*changing direction and exits the overbought/oversold areas, it can foreshadow a trend reversal***.**

*reversal signals on your price charts***Divergences:**As with

**, or at least the end of a trend. A divergence is a situation where the indicator and the price action are showing opposing signals.**

*every momentum indicator, divergences can also be a very important signal here to show potential trend reversals***Trendlines :**Trendlines are

**. Locate a well-established trend with a reliable trendline, then watch for the price to break it and your Stochastic confirms it.**

*very useful for trading stochastic divergences or stochastic reversals***Frequently Asked Questions**

** 80 and 20 are the most common levels used, but can also be modified as required. For OB/OS signals, the Stochastic setting of 14,3,3 works well**. The higher the time frame the better, but usually a H4 or a Daily chart is the optimum for day traders and swing traders.

Stochastic Oscillator 14 3 3 is used to: (1) Identify overbought and oversold levels. (2) find divergences and. (3) identify bull and bear set ups or crypto signals.

It is often used to indicate oversold (top of range) or overbought (bottom of range) conditions. The oscillator's basic calculation is 100*(current price-period low)/(period high-period low). This is a fully configurable version of the Slow Stochastic Oscillator.