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Stochastic Oscillator (STOCH)

The Stochastic Oscillator is a momentum indicator used to identify the price's speed or momentum. It is calculated by measuring the level of the close relative to the high-low range over a period of time. This indicator is used to identify reversals before they happen.

This indicator is used to find the price lows and highs. When the lines are above 80, the price is considered to be near its high for the given period. When the lines are below 20, the price is considered to be near its low for the given period. So you can use this information to anticipate reversals.

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Stochastic Oscillator Formula

%K = (Current Close - Lowest Low)/(Highest High - Lowest Low) * 100
%D = 3-day SMA of %K

Lowest Low = lowest low for the look-back period
Highest High = highest high for the look-back period
%K is multiplied by 100 to move the decimal point two places

Formula Source: StockCharts

For more information (also the source) visit: StockCharts