Stochastic oscillator: What is stochastic oscillator – stochastic oscillator
The Stochastic Oscillator is a motion indicator that compares the specific closing price of a security relative to its price range over a specific period of time. The sensitivity of the oscillator to market movements can be reduced by adjusting the time period or by taking the moving average of the result. It is used to generate overbought or oversold trading signals using the 0-100 bound range of values.
The stochastic oscillator is a popular technical indicator for generating an overbought or oversold trading signal.
Stochastic oscillators vary around some average price levels as they depend on the history of asset prices.
The general principle that serves as the basis of this indicator is that the price will move closer to the high in the up trending market, while the price will move closer to the lower in the lower trending market. A transaction signal is generated when% K exceeds the moving average of three periods, called% D.
What does the stochastic oscillator tell you?
The stochastic oscillator is hierarchical which means it is always between 0 and 100. This makes it a useful indicator in case of over-buying and over-selling. Traditionally, readings above 80 are considered a higher purchase category, while readings below 20 are considered a higher purchase category. While this is not always an indicator of near-term change, a very strong trend could lead to more buying or oversold conditions for an extended period. Changes in stochastic oscillators must be considered to understand changes in future trends.
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