Overview: The stochastic oscillator is like relative strength index (RSI) in the sense that it sets up an index valued between zero and 100. However, it employs two moving averages and identifies overbought above 80 and oversold below 20. As an alternative, it adds value to momentum tracking when used in conjunction with RSI, or for confirmation of other oscillators and indicators.
Among oscillators, the stochastic may be the most obscure. The word “stochastic” is a statistical term meaning random probability, which at first glance is not especially reassuring to the analyst on an unending quest for predictability. However, despite its odd name, the stochastic oscillator adds an element of confirmation to what ...
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