Stochastic oscillator
The stochastic oscillator is a 0 to 100 indicator that shows where price closed relative to the high-low range of the last N candles (usually 14).
How it works
The main line %K = (close − lowest low of 14 candles) / (highest high of 14 − lowest low of 14) × 100. The second line %D is a 3-period average of %K. A reading of 100 means price closed at the top of the range, 0 at the bottom.
Above 80 is considered overbought and below 20 oversold. A common signal is a %K and %D crossover inside those zones, for example %K crossing below %D above 80. Traders also look for divergence between the stochastic and price.
The stochastic is faster and twitchier than RSI, so it works best in a range where price swings from edge to edge. In a strong trend it can sit near 80 or 20 for weeks, and counter-trend signals there are dangerous.
Over 14 candles the high is $110, the low is $90 and the latest close is $106. %K = (106 − 90) / (110 − 90) × 100 = 80. Price closed in the top 20% of the range, right at the edge of the overbought zone.
The mistake is selling as soon as the stochastic goes above 80. In an uptrend that happens all the time, and an overbought reading often shows strength, not a top. Check the trend on a higher timeframe and take stochastic signals in the direction of the trend: in an uptrend, the moves back up out of the zone below 20.
Questions and answers
What is the stochastic oscillator in simple terms?
It is an indicator that shows whether the closing price is near the top or the bottom of the recent range, on a 0 to 100 scale.
What is the difference between stochastic and RSI?
RSI compares the strength of up and down moves, while the stochastic measures where the close sits in the range. The stochastic is usually faster and gives more signals, including false ones.
What are the standard stochastic settings?
Most often 14, 3, 3: a 14 period with %K and %D smoothed over 3. The 80 and 20 levels mark overbought and oversold.
Related terms
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Updated: 2026-10-19