Stochastic is designating a process having an infinite progression of jointly distributed random variables.
The Stochastic Oscillator Technical Indicator compares where a security’s price closed relative to its price range over a given time period.
The Stochastic Oscillator is displayed as two lines.
The %K line is usually displayed as a solid line and the %D line is usually displayed as a dotted line.
There are several ways to interpret a Stochastic Oscillator. Three popular methods include:
This is confirmation indicator and acts as a filter, or confirmation for some other signal, and filter to filter false signals.
NOTE: The main signals (from some other indicators) may not come in simultaneously with the Stochastic.
Thus, the most usual rules/signals (most usually used) for this indicator are the following:
or
or
The main line is above some level (50%, 70% or 80%):
The main line is below some level (50%, 30% or 20%):