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Stochastic Oscillator

By: vss2000.com Stochastic Oscillator ( SO ) The Stochastic Oscillator was introduced by George C. Lane. The indicator provides information about the location of a current close in relation to the period's high and low. The closer the close is to the period's high, the higher is the buying pressure, and the closer the close is to the period's low, the more selling pressure is. Usage: The indicator is considered bullish, when above 80, and bearish, when below 20. As this definition does not provide any insights on when to buy or sell, consider generating signals when the indicator moves from the overbought / oversold territory back. The crossings between the %K and its moving average can be used for the same purpose. Finally, the divergence can be considered a very strong signal. When the divergence develops when the indicator is moving from the overbought / oversold levels, it is a sell / buy signal. Additionally, the K39 (unsmoothed 39 period stochastic oscillator) was reported to generate good results when tested on paper. A buy signal is generated when K crosses above 50% and the close price is above the previous week's highest close. Sell signals are generated when K crosses below 50% and the close is below the previous week's lowest close. An additional confirmation can be provided by some indicators from the different group, for example, the On Balance Volume (OBV) indicator. The most value of a stochastics is when the strong trend is present. According to Lane, the safest way to trade is to buy when the trend is up, and to sell with the downtrend.