Stochastic oscillator
The stochastic oscillator shows where the latest close sits inside the recent high-to-low range, scaled 0 to 100.
How Stochastic oscillator is calculated
%K = 100 x (close - lowest low of n bars) / (highest high of n bars - lowest low of n bars), with n usually 14. %D is a 3-bar average of %K. A close at the top of the range gives 100 and at the bottom gives 0. George Lane popularised it.
How it is read
Above 80 is called overbought and below 20 oversold. A %K line crossing %D is read as a turn. The slow version smooths %K once more before comparing.
Common mistakes
- Assuming a reading of 100 means a reversal. It means the close is at the top of the window, which is what a rising market does.
- Ignoring that a flat range makes the denominator small and the line jumpy.
- Stacking it with RSI as if two oscillators were independent evidence. Both come from the same closes.
What Tickfloor tested
Tickfloor's research desk has backtested 678 strategies, net of modelled trading costs. After correcting for the 761 tests run, 0 passed. That does not prove no strategy works. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
Related concepts
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.