How Stochastic Oscillator Works

The Stochastic indicator uses time periods to calculate the fast & slow lines. The number of time periods used to calculate the %K & %D line depends on what purpose a trader is using the Stochastic indicator for.

• A trader using the Stochastic indicator in combination with a trend indicator to see overbought & oversold levels, one-can use periods 10 periods.
• The default period used by stochastic indicator is 12.

traders should not use stochastic indicator alone for making trading decisions, but should use this Stochastic indicator in combination with other technical indicators.

In ranging markets this Stochastic oscillator technical indicator can be used to show oversold/overbought areas as potential profit taking points when trading the market.

Oversold & overbought levels by default are 20 and 80, but other traders use 30 & 70.

To look for "overbought" region at the indicator's 80% stochastic oscillator mark is used

To look for "oversold" region 20% stochastic oscillator mark is use.

The overbought & oversold levels are displayed as dotted horizontal lines on the stochastic indicator. These levels can also be adjusted to the 30 and 70 levels.

Overbought & Oversold Levels on Stochastic Oscillator Technical Indicator