Term

Stochastics oscillator

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The Stochastics oscillator is an Indicator used to validate overbought and oversold condition in a market. It is made up of a K period, D period and slowing. Stochastics Oscillator has two area or levels. A market is considered to be Overbought above the 80 level and Oversold below the 20 level.

This indicator is great tool to use when you follow a trend. If you in an uptrend, then oversold conditions could be a sign that the pullback is over. When in a downtrend, the overbought conditions could now signal that the pullback is exhausted and that the trend may continue.

The stochastic indicator may also remain overbought or oversold if the trend is impulsive.

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