1. Stochastic Oscillator
Lecture 30
Stochastic Oscillator

2. Stochastic Oscillator
Developed by George C. Lane in the late 1950s, the Stochastic Oscillator is a momentum indicator
It shows the location of the current close relative to the high/low range over a set number of periods
The idea behind this indicator is that prices tend to close near their past highs in bull market, and near their lows in bear markets.
This is why investor should stop buying when prices reach their previous high or stop selling when prices drop to their previous lows

3. The Stochastic Oscillator is displayed as two lines
The Stochastic Oscillator is displayed as two lines. The main line is called %K. The second line, called %D, is a Moving Average of %K. The %K line is usually displayed as a solid line and the %D line is usually displayed as a dotted line.

4. Calculation

5. %K tells us that the close (115
%K tells us that the close (115.38) was in the 57th percentile of the high/low range, or just above the mid-point. 
Because %K is a percentage or ratio, it will fluctuate between 0 and 100
Readings below 20 are considered oversold and readings above 80 are considered overbought

7. 3 points average
A shop records it’s sales figures for the first 6 months of the year:
January = £936
February = £939
March = £903
April = £870
May = £882
June = £810
Calculate all of the 3 point moving averages and describe the trend:
1st 3 point moving average:
( ) ÷ 3 = £926
The 2nd 3 point moving average is:
( ) ÷ 3 = £904
The 3rd 3 point moving average is:
( ) ÷ 3 = £885
The 4th 3 point moving average is:
( ) ÷ 3 = £854

8. So the 3 point moving averages are £926, £904, £885 and £854
So the 3 point moving averages are £926, £904, £885 and £854. Since the moving averages are decreasing then the sales figures are going down as the months go by.