ID'ing When to Buy and Sell Using the Stochastic Oscillator

by Wayne A. Thorp, CFA

ID'ing When To Buy And Sell Using The Stochastic Oscillator Splash image

There is no such thing as a universal indicator. Rather, different conditions dictate the use of different indicators.

Oscillators, which are indicators that move between zero and 100, are useful in identifying conditions where a security may be overextended—overbought or oversold. In the May issue of the AAII Journal, we took a look at one popular oscillator, Wilder’s relative strength index. This article focuses on another popular indicator, the stochastic oscillator.

Share this article


About the author

Wayne A. Thorp is senior financial analyst at AAII and editor of Computerized Investing. Follow him on Twitter at @AAII_CI.
Wayne A. Thorp Profile
All Articles by Wayne A. Thorp

The Calculation

The word stochastic is defined in general as a process involving a random variable. The stochastic oscillator was first introduced by George Lane in the 1970s. This indicator consists of two lines—the %K and %D lines—and compares the most recent closing price of a security to the price range in which it traded over a specified time period.

The following formula shows you how to calculate the latest point on the %K line:

To read more, please become an AAII Registered User or CLICK HERE.

First:   
Last:   
Email:

              
Wayne A. Thorp, CFA is senior financial analyst at AAII and editor of Computerized Investing. Follow him on Twitter at @AAII_CI.


Discussion

No comments have been added yet. Add your thoughts to the discussion!

You need to log in as a registered AAII user before commenting.
Create an account

Log In