What is a stochastic oscillator?
Stochastic oscillator is the type of momentum indicator used in technical analysis of safety trading. Stochastic Oscilllators evolved and advanced in the 1950s. George Lane at E.F. Hutton & Co. Stochastics, which is useful for the predictions of turnover and reversal, are usually used in conjunction with the arsenal of other tools to dispose of a technical merchant such as cycles, fibonacci drains and the theory of Elliot waves.
According to George Lane himself, the basic concept of a stochastic oscillator can be understood by the visualization of the rocket rising into the air: "Before he can refuse, it must slow down. Momentum always changes the direction before price." Stochastics is therefore measuring the momentum of the price. Because securities tend to trade to a certain extent over time, the default setting for a stochastic oscillator is 14 periods, whether periods will be hours, days, weeks or months. By setting an oscillator to a certain past period, for example, 14 days to the present, the user mayThe closer of the future proportionally assume market behavior. Given the tendency of some securities in the short term, the user should notice that the oscillator smoothes the longer the set time frame.
The formula with which the stochastic oscillator is calculated is as follows: %K = 100 [(C - L14)/(H14 - L14)]. In the formula, C is the latest final price, L14 is the low price of the previous 14 sessions and H14 is the highest price from the same 14 -day period. A %D can be calculated using a movable diameter of 3 periods. The representation of the graph is through two lines representing %K and %D, with the third line often using a simple sliding average. Interpretation of Movements lines %K and %D revolves around their convergence and divergence. By noticing the formulas of the crossover of both lines and in conjunction with other analytical tools, the Chartist can make informed market decisions and according to PFather to take bear or bull position.
The stochastic oscillator is also a good indicator of use in determining overcame and surchanted levels. This indicator, known as the "tied oscillator", always works between 0 and 100. Traditionally, converted and surpassed levels are set to 80 and 20. Similarly, trading below 20 indicates a converted state that shows that there may be time for purchase. However, it should be noted that these indicators must be used carefully, as a market with a strong or ascending trend may not actually be bear or bull, but suggest more professionals down or up.