George C. Lane developed the Stochastic Oscillator in the late 1950s.
It’s a technical indicator which compares a stock’s closing price to its price range over a given period of time. The belief is that in rising market stocks will close near their highs, while in a falling market they will close near their lows.
The Stochastic Oscillator contains four variables:
1) %K Periods: This is the number of time periods used in the stochastic calculation.
2) %K Slowing Periods: This value controls the internal smoothing of %K. A value of 1 is considered a fast stochastic while a value of 3 is considered a slow stochastic.
3) %D Periods: This is the number of time periods used when calculating the moving average of %K.
4) %D Method: The method (Exponential, Simple, Time Series, Triangular, Variable, or Weighted) used to calculate %D
Signals for buying & selling:
- The signals of buying given when oscillator (either %K or %D) falls below the line, and then again crosses the bottom level upwards or when the curve %K crosses the curve %D from below upward.
- The signals of selling when oscillator grows above the line, and then crosses the top level downwards or when the curve %K crosses a curve %D from top to downward.
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