The stochastic oscillator shows where the market price is, in the range of the last “n” period. It is used to identify overbought and oversold conditions at the market. The basic line for drawing a Stochastic Oscillator is indicated with% K and its values are calculated using the following formula:
(Current closing price – At least for the last “n” period) * 100
% K = ———————————-
(Maximum for the last “n” period – Minimum for the last “n” period)
% D is the moving average of % K and it is called the signal line. In the slow version of the indicator for line % K, it is taken line % D from the fast stochastic oscillator, and for % D it is also used the moving average of its own % K.
A signal for oversold condition is given by indicator values below 20, and for overbought, values over 80.