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The default calculations are based on a relatively simple formula, one that might look at home in a 10th grade math book.
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Lane, the stochastic oscillator moves into overbought and oversold areas at readings above 80 or below 20, respectively.
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Proponents like the stochastic oscillator because of its easy-to-remember range of zero to 100, its overbought versus oversold indications, and its ability to help signal divergences in stock price movement. It’s based on the premise that as price trends higher, the closing price tends to cluster toward the higher end of the price range, whereas during a downtrend, the closing price tends to cluster toward the lower end of the price range. As the stock closes near the high of the range, the stochastic oscillator rises, and as the stock closes near the low of the range, it falls. The stochastic oscillator measures the distance between a stock’s closing price and its range of highs and lows over a specified period. So, let’s break it down and look at how stochastics could potentially be incorporated into your trading. Even some veteran traders have a hard time understanding the mechanics behind the stochastic oscillator.
#Mt4 drake delay stochastic how to
Stochastics may be popular, but if you’re not clear on how to interpret “overbought” versus “oversold” stocks or how to identify trend direction, you’re not alone. Lane, a Chicago futures trader and early proponent of technical analysis, popularized the momentum indicator in the late 1950s. George Lane used to describe the stochastic oscillator, one of the most regularly followed technical indicators. If you visualize a rocket going up in the air-before it can turn down, it must slow down. “Stochastics measures the momentum of price.