EURUSD 1.1694 USDJPY 111.43 USDCAD 1.2483 EURCZK 26.028 USDCZK 22.253 EURPLN 4.2540 USDPLN 3.6377
EURUSD 1.1694 USDJPY 111.43 USDCAD 1.2483 EURCZK 26.028 USDCZK 22.253 EURPLN 4.2540 USDPLN 3.6377

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Learn the basics of financial markets

The Stochastic Oscillator is one of the most popular indicators among the array of technical analysis tools

Rule of thumb

The main line of the Stochastic oscillator is marked as %K, and the signal line is labelled %D

 

One of the methods of interpretation assumes that a bullish signal is generated, once the oscillator line %K crosses the signal line %D from below – consequently bearish interpretation would be assigned to the crossing of the %D line from above

The Stochastic Oscillator  was created by dr. George C. Lane, and it reflects the current market speed in respect to  price action in the past. It compares the current market price with  extreme levels observed in  a recent period.

 

stochastic, oscillator, george lane

 

The Stochastic oscillator values are standardised in  a way that  always assumes values in the range of 0 and 100. Its construction also includes a signal line, a simple moving average of the main indicator.

 

As the most important signals provided by the Stochastic oscillator are considered divergences with  a market price, where the Stochastic is assumed to act as a leading indicator. Moreover, the oscillator moves within a fixed range, and the interpretation may include  the identification of overbought/oversold market conditions. Typically, as key levels in this respect, values 20 and 80 are assumed.

 

Signals of trend reversal occur where  an indicator is increasing from values below 20 – bullish trend reversal - or decreasing from values above 80 – bearish trend reversal.

 

How to use it with MetaTrader 5:

  • Select a chart where the Stochastic Oscillator should be added.
  • Choose: Insert - Indicators - Oscillators - Stochastic Oscillator.
  • The Stochastic Oscillator indicator will be calculated by MetaTrader 5.

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