How to read the stochastic indicator

• Stochastic

  In technical analysis of trading, the stochastic oscillator is a momentum indicator that uses support and resistance levels. George Lane developed this indicator in the late 1950s. The term stochastic refers to the point of a current price in relation to its price range over a period of time. This method attempts to predict price turning points by comparing the closing price of a security to its price range.

• The stochastic indicator is scaled between 0 and 100.

• A reading above 80 indicates that the instrument is trading near the top of its high-low range. A reading below 20 signals that the instrument is trading near the bottom of its high-low range.

• Readings above 50 indicate the instrument is trading within the upper portion of the trading range. Readings below 50 signal that the instrument is trading in the lower portion of the trading range.

• When the stochastic lines are above 80, the indicator signals that the instrument is overbought. When the stochastic lines are below 20, it signals that the instrument is oversold.