Glossary
Stochastic oscillator
A momentum indicator that shows where the latest close sits within the high-low range of a recent window, scaled from 0 to 100.
On this page
The stochastic oscillator measures where today's closing price sits within the range of highs and lows over a recent look-back period, on a scale from 0 to 100. A reading of 90 means the close is near the top of that range; 10 means it is near the bottom. Popularized by George Lane in the 1950s, it is one of the standard ways to gauge short-term momentum and spot overbought or oversold conditions.
How it works
The textbook settings are 14, 3, 3. Finabase's charts default to 15, 5, 5, a smoother version inherited from the original Stock Master app.
How traders use it
Readings above 80 are commonly labeled overbought and below 20 oversold, and a %K line crossing its %D line is the usual trigger. Divergences, such as price making a new high while the oscillator makes a lower one, hint at fading momentum.
The main trap is reading "overbought" as "about to fall." In a strong uptrend the stochastic can sit above 80 for weeks while price keeps climbing, and every crossover sell signal along the way fails. It works best in sideways, range-bound markets, or when its signals are taken only in the direction of the larger trend.