The Stochastic Oscillator Technical Indicator compares where a securitys price closed relative to its price range over a given time period. The Stochastic Oscillator is displayed as two lines. The main line is called %K. The second line called %D is a Moving Average of %K. The %K line is usually displayed as a solid line and the %D line is usually displayed as a dotted line. There are several ways to interpret a Stochastic Oscillator. Three popular methods include:
Four variables are used for the calculation of the Stochastic Oscillator:
The formula for %K is:
%K = (CLOSE - MIN (LOW (%K))) / (MAX (HIGH (%K)) - MIN (LOW (%K))) * 100
CLOSE – todays closing price;
MIN (LOW (%K)) – the lowest low for the %K periods;
MAX (HIGH (%K)) – the highest high for the %K periods.
The %D moving average is calculated according to the formula:
%D = SMA (%K, N)
N – smoothing period;
SMA – Simple Moving Average.