What Is The Stochastic Oscillator Used For When Trading Stocks

The stochastic oscillator is one of the most common oscillators used by investors. This oscillator illustrates the current buying and selling pressures of a stock; based on the current closing price relative to the high and low range over a certain period of time.

Readings of 20 or below given by this oscillator are a sign that a stock may be oversold. If the reading is 80 or above it is a sign that the stock may be overbought. Many investors will say that once the oscillator is above 80 then crosses back down below 80 it may be time to sell. Then of course if the oscillator moves from below 20 upwards past 20 then it may be time to buy.

As always please remember no one indicator is going to be 100% accurate all of the time.