Stochastic Oscillator

A range-relative momentum oscillator comparing the closing price to the recent high-low range, useful for pullback and mean-reversion entries.

Stochastic Oscillator (14, 3, 3) applied to NAS100 on a 1-hour chart showing %K and %D crossovers with overbought and oversold zones
Stochastic Oscillator (14, 3, 3) on NAS100 1H — %K (blue) and %D (orange) lines oscillating between the 80/20 zones

The stochastic oscillator compares the current closing price to the recent high-low range. It is also a momentum oscillator, but it is range-relative rather than average-gain/loss based like RSI. Traders often focus on 80/20 zones and on crossovers between %K and %D. A very common setting is 14,3,3.

Stochastics are especially helpful in range-bound or slower-moving markets, where repeated swings from one side of a range to the other matter more than long trend persistence. In strategy terms, that makes them a natural fit for pullback entries and mean-reversion systems. They are less reliable when used on their own during strong trends, because "oversold" in an uptrend may simply mean "pullback in progress," not "time to short the market."