The stochastic oscillator is a momentum indicator used in technical analysis, introduced by George Lane in the 1950s, to compare the closing price of a commodity to its price range over a given time span.
Closing levels that are consistently near the top of the range indicate accumulation (buying pressure) and those near the bottom of the range indicate distribution (selling pressure).
The idea behind this indicator is that prices tend to close near their past highs in bull markets, and near their lows in bear markets. Transaction signals can be spotted when the stochastic oscillator crosses its moving average.
Two stochastic oscillator indicators are typically calculated to assess future variations in prices, a fast (%K) and slow (%D). Comparisons of these statistics are a good indicator of speed at which prices are changing or the Impulse of Price. %K is the same as Williams's %R, though on a scale 0 to 100 instead of -100 to 0, but the terminology for the two are kept separate.
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