by Harry Schirding
Stochastic is an oscillator, that like the Relative Strength Indicator (RSI) or Contary Opinion, can be
used to indicate an overbought or oversold condition. The process has at its root an observation that in
rising markets, prices tend to accumulate near the upper end of the day's trading range. The observation
also follows for falling markets that the close will tend to accumulate near the lower end of the day's
trading range. The result of computations described below will net two indicators, the "%D" and "K",
which are plotted together to give a visual picture of the overbought or oversold of the data base used.
The following paragraphs describe two separate methods that can be used in the computation of the
stochastic. The first method uses two formulas that will compute the values for "K" and "%D"
respectively. The second method will make use of a table (figure 1) to arrive at the same values for "K"
and "%D". Both of these methods will compute the regular stochastic and a smoothed stochastic referred
to as the slow stochastic.