The Stochastic is an oscillator developed by George Lane that is based on two future assumptions: in an uptrend, the closing prices tend to approach the maximum price range and in a downtrend the closing prices tend to approach the minimum of the price range.
There are two versions of the stochastic indicator:
• fast stochastic
• slow stochastic
In the fast stochastic the % K line is constructed as a percentage relationship between the closing price and a certain price range (to 14 periods), while the% D line is the moving average (3 periods) of the line % K.
In the slow version of the stochastic (slow stochastic) the% K line is constructed as the average (3 periods) average of the% D line of the fast stochastic version, while the% D line is the moving average (3 periods) of the new line % K.
The Stochastic oscillates between 0 and 100. When it is above 80 then it is showing as overbought and the closing price is close to the maximum price range, while when it is below 20 it is oversold and the closing price is close to the minimum of the price range.
The best operating signals are given by divergences with prices, especially when the stochastic is overbought or oversold and there is also a crossover between the fastest line% K and the slower line% D.