What is Stochastic Oscillator? How to calculate trend using stochastic oscillator?

What is Stochastic Oscillator?

      The Stochastic Oscillator Indicator compares where a currency or security  price closed relative to its price range over a given time period. It displayed two lines that the first line is called %K and next line is called %D. %D is a Moving Average of %K. The %K line is displayed as solid lines in chart and the %D line is displayed as dotted lines in chart.

How to calculate trend using Stochastic Oscillator?

The main two methods are as follows.

• Initiate your Buy when %K line rises above the %D line and enter your sell when the %K line falls below the %D line.
• Buy when the Stochastic Oscillator fall below 20 levels. Same as sell when the indicator rise above 80 levels.

Basically four types of variables used in Stochastic Oscillator.

• %K Period: Time period used in stochastic oscillator
• %K Slowing Periods: A value of 1 is measured a fast stochastic and a value of 3 is measured a slow stochastic.
• %D periods: Number of time periods used while calculating a moving average of %K.
• %D method: It is used to calculate %D.

Stochastic Calculation:

          %K = (CLOSE-LOW (%K))/ (HIGH (%K)-LOW (%K))*100

Close - Today close value.
Low (%K) - Lowest Value of %K Period.
High (%K) - Highest Value of %K Period.

         %D = SMA (%K, N)

N - Smoothing period.
SMA - Simple Moving Average.