# Stochastic Oscillator

Developed by George C. Lane.

This is a momentum indicator designed to show the relation of the current close stock indexes price relative to the high/low range over a given number of periods using a scale of 0-100. It is based on the assumption that in a rising market the indices price(s) will close near the high of the range and in a declining market the indices price(s) will close near the low of the range.

There are typically drawn as 2 lines: %K and %D. %K is the main (fast) line and %D is the signal (slow) line.

**Interpretation**

There are three basic techniques for using the various Stochastic Oscillators to generate stock indices signals.

## Stochastic Oscillator Crossovers:

1. %K line / %D line Crossover: A buy stock indices signal occurs When the %K line crosses above the %D line and a sell stock indices signal occurs when the %K line crosses below the %D line.

2. %K line / 50-level Crossover: When the %K line crosses above 50 a buy stock indices signal is given. Alternatively, when the %K line crosses below 50 a sell stock indices signal is given.

## Stochastic Oscillator Divergence:

Looking for divergences between the Oscillator MT5 Stock Indexes Indicator and stock indexes price can prove to be very effective in identifying potential reversal points in stock indexes price movement. Trade long on Indices Trading Classic Bullish Divergence: Lower lows in stock indexes price and higher lows in the Oscillator; Trade short on Indices Trading Classic Bearish Divergence: Higher highs in stock indexes price and lower highs in the Indicator.

## Overbought Oversold Levels:

The Stochastic Oscillator MT5 Indices Indicator can be used to identify potential overbought and oversold conditions in stock indexes price movements. An Overbought level is generally described as the indicator being greater than or equal to the 80% level while an oversold level is generally described as the level being less than or equal to the 20% level. Trades can be generated when the stochastic crosses these levels. A buy stock indices signal occurs when the levels declines below 20% and then rise above that level. A sell stock indices signal occurs when the levels rise above 80% and then decline below that level.

**Stochastic Oscillator MT5 Stock Indexes Indicator**