Understanding the Stochastics Technical Indicator

Stochastics Technical Indicator

Stochastics is an important indicator for the technical analysis of a stock or a whole sector.

When you’re learning technical and analytical stock trading, you’ll need technical indicators to perform technical analysis and get a clear picture of a stock or an entire sector. You may come across a term called “stochastics”, a formula developed by George Lane.

The Slow Stochastics Indicator Formula

Investopedia defines stochastics as an indicator measuring the relationship between the closing price of an issue and its price range over a range or period of time already determined. This is also something known as the “slow stochastic indicator”, a formula which serves as a price oscillator for comparing the closing price of a security over “n” range. Here’s the slow stochastic formula:

image of slow stochastics formula

 

14 is the range most commonly used for the slow stochastic indicator, but you can replace the “n” with the specific range you are monitoring. If you wish to continue using 14, you must get the highest value and the lowest value over the past 14 trading bars. You can calculate the slow stochastic on any time frame. 14 can represent days or weeks, or even months.

It isn’t always advisable to calculate slow stochastics with raw market data, unless you are an experienced chartist. Rather, you can use the indicator your trading platform provides you with.

What the Chartist Does with Stochastics

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Tradezero

TradeZero is an online broker dealer that offers commission free trading of the US equity markets, US equity and index options trading. Its clients receive up to 6 to 1 intraday leverage and the ability to trade the US markets without any pattern day trading rules. TradeZero clients have access to a variety of cutting edge trading platforms which include real-time streaming market data.

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