Stochastic Oscillator

Description

A stochastic oscillator is a momentum indicator comparing a particular closing price of a security to a range of its prices over a certain period of time. The sensitivity of the oscillator to market movements is reducible by adjusting that time period or by taking a moving average of the result. It is used to generate overbought and oversold trading signals, utilizing a 0-100 bounded range of values.

Traditionally, readings over 80 are considered in the overbought range, and readings under 20 are considered oversold

Trading Strategy

A buy signal is produced when the Stochastic Oscillator is below the minimum threshold and the slow k crosses below the slow d. A sell signal is produced when the indicator is above the maximum threshold and the slow k crosses above the slow d.