The Stochastic Oscillator by Amy Wu
Identify overbought and oversold levels with
this popular indicator.
Identifying overbought and oversold levels is a
starting point in your analysis. To really
understand those levels, though, you need to
know how they’re derived. The stochastic
oscillator can do the job for you.
The stochastic oscillator compares the price of a security
to its price range over any time period. The stochastic
oscillator is made up of two lines: %K (the primary line) and
%D (the secondary line). The %K is normally depicted as a
solid line; the %D is usually dashed. The %K line is the
stochastic oscillator and the %D line smoothes the %K line,
usually by three periods.