What Is the Stochastic Oscillator and How Is It Used?
The stochastic oscillator is one of the most relied-upon tools in technical analysis, ranking alongside popular indicators like the relative strength index (RSI) and moving average convergence/divergence (MACD).
Developed by George Lane in the 1950s, this momentum indicator helps traders identify potential market reversals by comparing a security’s closing price to its price range over a given period. Like a thermometer measuring market temperature, it signals when assets may be running too hot (overbought) or too cold (oversold).
The indicator’s power lies in the idea upon which it’s based: Momentum changes often precede price changes. When a stock is trending upward, it tends to close near the high of its range, while during…
