Stochastic Oscillator


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Stochastic Oscillator

In technical analysis, an indicator of market momentum. A stochastic oscillator measures whether the closing price of a security is closer to the high or the low. It is based on the assumption that when a market is trending upward, the closing price will be closer to the highest price, and, when it is trending downward, the closing price will be closer to the lowest price. It is calculated as:

Stochastic Oscillator = 100 * (closing price for a given day - lowest price for the previous 14 trading days) / (highest price for the previous 14 trading days - lowest price for the previous 14 trading days).
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The RSI and the Stochastic Oscillator have moved up, suggesting a positive trend ahead.
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The stochastic oscillator reveals the pair to be in so-called "overbought" territory and may lose all strength soon.
For the sake of simple illustration, we consider the stochastic oscillator with multiplicative white noise
The range of possible values for the stochastic oscillator lies between 0% and 100%, with 20% generally considered oversold and 80% overbought.

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