Introduction to Stochastic Oscillator
The Stochastic Oscillator, developed by George Lane in the 1950s, is a momentum indicator that compares the closing price of a security to its price range over a given period. It is composed of two lines: %K (fast) and %D (slow).
Calculation
%K = 100 × (Close − Low_n) / (High_n − Low_n)
%D = SMA(%K, 3)By default, the Stochastic Oscillator uses a 14-period setting. %K is the faster line, while %D is the slower line, which is a 3-period simple moving average (SMA) of %K.
Signals and Interpretation
- When %K crosses above %D below 20, it generates a buy signal.
- When %K crosses below %D above 80, it generates a sell signal.
- %K above 80 indicates overbought conditions, while %K below 20 indicates oversold conditions.
- Divergence can be applied similarly to the Relative Strength Index (RSI).
Stochastic vs RSI
The Stochastic Oscillator is more sensitive than the RSI, resulting in more signals but also more noise. It is more suitable for short-term trading, while the RSI is more stable and better suited for swing trading.
Example
In June 2024, the Stochastic Oscillator for HPG generated a buy signal when %K crossed above %D at the 18 level (oversold). The stock price subsequently increased by 20% over the next four weeks.
Applying Stochastic Oscillator on Vnstock
The Stock Screener on Vnstock allows investors to filter stocks based on the "Stochastic Bullish Cross" signal. The symbol modal displays %K and %D values in real-time.
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🚀 Apply now: Vnstock offers a free Stock Screener with 25 indicators, including the Stochastic Oscillator. Open Vnstock →
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