The stochastic compares the close to the high-low range of the last N candles. It runs from 0 to 100.
- Above 80: overbought (close near the top of the range).
- Below 20: oversold (close near the bottom).
- %K is the fast line, %D the slow line. A %K cross of %D gives timing signals.
Where it shines
In ranges: buy when stochastic crosses up from below 20 near support, sell when it crosses down from above 80 near resistance.
Wick says
"Overbought" doesn't mean "must fall". It means "has been strong". In trends, stochastic can stay overbought for days.
Key takeaways
- 0–100 scale; 80/20 are the common lines.
- Best in ranging markets.
- Use with levels for timing, not on its own.