Stochastic Oscillator is a momentum indicator used in technical analysis that compares closing prices of security to a price range of same security over a given period of time.
Behind the stochastic theory lays the belief that when prices increase, closing prices tend to accumulate near the highs, and when prices decrease, closing prices tend to accumulate near their lows.
Stochastic oscillator is calculated on the following way:
%K = 100{(C- L14) / (H14 - L14)}, where:
C = most recent closing price
L14 = lowest price during previous 14 days
H14 = highest price during previous 14 days
%K is a percentage ratio and, therefore, it fluctuates between 0 and 100. In order to find a trigger line, 3-day moving average of %K is used, and it's called %D.
The George C. Lane introduced stochastic Oscillator in the late 1950s in order to show the location of current close in relation to the high/low range over a given number of periods.
