How Stochastic Indicator Works

The Stochastic oscillator indicator uses time periods to calculate the fast and slow lines. The number of time periods used to calculate the %K and %D line depends on what purpose a trader is using the Stochastics oscillator indicator for.

A Index trader using the Stochastic oscillator indicator in combination with a trend indicator to see overbought and oversold levels, a trader can use periods 10 periods.
The default period used by the stochastic Index oscillator indicator is 12.

Stock Indices traders should not use stochastic indicator alone for making trading decisions, but should use this Stochastic oscillator indicator in combination with other technical indicators.

In ranging markets this Stochastic oscillator trading can be used to illustrate oversold/overbought levels as potential profit taking and booking points when trading the market.

Oversold & overbought levels by default are 20 & 80, but other Indices Traders use 30 & 70.

To look for "overbought" region at the indicator's 80% stochastic Indices oscillator mark is used

To look for "oversold" region 20% stochastic Indices oscillator mark is use.

The overbought and oversold levels are shown as dotted horizontal lines on the stochastic oscillator indicator. These levels can also be adjusted to the 30 & 70 levels.

How Stochastic Oscillator Works

Overbought and Oversold Levels on Stochastic Indicator

More Lessons:

Trade Stock Indices

How Stochastic Indicator Works