Stochastic oscillator

are the highest and lowest prices in the last 5 days respectively, while %D is the N-day moving average of %K (the last N values of %K).

There is only one valid signal in working with %D alone — a divergence between %D and the analyzed security.

[3] The calculation above finds the range between an asset's high and low price during a given period of time.

[3] The idea behind this indicator is that prices tend to close near the extremes of the recent range before turning points.

According to George Lane, the Stochastics indicator is to be used with cycles, Elliott Wave Theory and Fibonacci retracement for timing.

In low margin, calendar futures spreads, one might use Wilders parabolic as a trailing stop after a stochastics entry.

The signal to act is when there is a divergence-convergence, in an extreme area, with a crossover on the right hand side, of a cycle bottom.

[3] As plain crossovers can occur frequently, one typically waits for crossovers occurring together with an extreme pullback, after a peak or trough in the %D line.

Prices tend to close near the extremes of the recent range just before turning points.

In the case of an uptrend, prices tend to make higher highs, and the settlement price usually tends to be in the upper end of that time period's trading range.

When the momentum starts to slow, the settlement prices will start to retreat from the upper boundaries of the range, causing the stochastic indicator to turn down at or before the final price high.

[5] An alert or set-up is present when the %D line is in an extreme area and diverging from the price action.

[6] Divergence-convergence is an indication that the momentum in the market is waning and a reversal may be in the making.

An event known as "stochastic pop" occurs when prices break out and keep going.