The Stochastic Oscillator is a momentum indicator that measures where the stock price is in relation to the recent trading range. A 14-day trading period is usually used. The Oscillator is made up of two lines: %K and %D. If the Oscillator is not smoothed (ie. Fast), the lines are calculated as follows:
Fast %K = 100*(C - L)/(H - L), where C is the most recent close, while L and H represent the lowest and highest prices traded during a given period.
Fast %D = 3-day moving average of Fast %K
If the Oscillator is smoothed (ie. Slow), the lines are calculated as follows:
Slow %K = 3-day moving average of Fast %K
Slow %D = 3-day moving average of Slow %K
The %K and %D both oscillate on a vertical scale of 0 to 100. A stock is considered overbought (or oversold) when the Oscillator moves above 80 (or below 20).
Parameters
Overbought - The threshold whereby a stock becomes overbought.
Oversold - The threshold whereby a stock becomes oversold.