How Stochastic Oscillator Indicator Works

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

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

Traders should not use stochastic indicator alone for making stocks decisions, but should use this Stochastic oscillator indicator in combination with other indicators.

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

Oversold & overbought levels by default are 20 and 80, but other traders use 30 and 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 and oversold levels are displayed as dotted horizontal lines on the stochastic oscillator indicator. These levels can also be adjusted to the 30 & 70 levels.

Overbought and Oversold Levels on Stochastic Oscillator Indicator