What is the Stochastic Oscillator in Trading?
What is the Stochastic Oscillator? The Stochastic Oscillator is a momentum indicator that compares a stock’s closing price to its price range over a specific period. It helps traders identify overbought and oversold conditions, which can signal potential reversals.
Overbought: When the Stochastic Oscillator is above 80, the stock may be overbought and due for a correction.
Oversold: When the Stochastic Oscillator is below 20, the stock may be oversold, signaling a buying opportunity.
How to Use the Stochastic Oscillator Traders use the Stochastic Oscillator to time their trades by identifying reversal points. When the oscillator crosses below 80 or above 20, traders often consider entering or exiting a trade.
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