Stochastic Oscillator

How it’s calculated

%K = (Close − Lowest low) ÷ (Highest high − Lowest low) × 100   (over 14 periods)
%D = 3-period simple moving average of %K

A reading of 100 means the close is at the top of the 14-period range; 0 means it’s at the bottom.

Fast vs slow stochastic

• Fast stochastic: the raw %K above and its 3-period average as %D. It’s very jumpy.
• Slow stochastic: %K is first smoothed with a 3-period average (this becomes the slow %K), and %D is a 3-period average of that. The common 14, 3, 3 setting is the slow version.

How traders read it

• Overbought and oversold: above 80 and below 20 are the usual levels. As with RSI, the indicator can stay there during strong trends.
• Crossovers: %K crossing %D, especially in the extreme zones, is watched as a possible change in momentum.
• Divergence: price making a new extreme while the oscillator doesn’t.

Stochastic vs RSI

RSI compares the size of gains and losses; the stochastic compares the close with the recent range. The stochastic usually moves faster and reaches the extremes more often.

On TradingView

Click Indicators and search for Stochastic. Its settings are %K length, %K smoothing and %D smoothing. A smoothing of 3 for %K gives the slow stochastic. See also MACD.

Educational explanation only. ChartWatch is independent and doesn’t give trading or investment advice. Trading carries a risk of loss.

FAQ

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