Stochastic Oscillator Guide (%K / %D)
The stochastic oscillator is a momentum indicator that compares the closing price to the recent high/low range. On Daily Cross Signals, you typically use Stochastic(14,3): a %K line with a smoothed %D signal line.
What Stochastic Measures
Stochastic answers a simple question: is the close near the top or bottom of the recent trading range?
- %K = the main stochastic line (more reactive).
- %D = a smoothed signal line (slower).
- Values range from 0 to 100.
Common Thresholds
- Above 80 = overbought zone.
- Below 20 = oversold zone.
Like RSI, "overbought" doesn't automatically mean "sell now." It means momentum has been strong and may be vulnerable to a pullback.
How to Use 80/20 Lines
Bullish Timing Idea
- Price is in an uptrend (above EMA21 and preferably above SMA100).
- Stochastic drops below 20, then %K turns up and crosses above %D.
- Look for price to regain EMA8 / EMA21 soon after.
Bearish Timing Idea
- Price is in a downtrend (below EMA21 and/or below SMA100).
- Stochastic rises above 80, then %K turns down and crosses below %D.
- Look for price to lose EMA8 / EMA21 soon after.
Stochastic vs RSI
Both are momentum indicators, but stochastic tends to move faster and generates more "timing" signals. RSI is often better for "regime" confirmation (above/below 50).
- Use stochastic for timing pullbacks and reversals.
- Use RSI to confirm bullish or bearish momentum.
- Use EMA21 / SMA100 for trend context.