What is Stoch?
A momentum indicator comparing a closing price to its price range over a given time period.
Think of it like this
Like measuring where today's temperature falls between the week's high and low - 80% means near the top of the range.
Formula
%K = (Close - Lowest Low) ÷ (Highest High - Lowest Low) × 100- %K (Fast): Current position in range
- %D (Slow): 3-period moving average of %K
Why it matters
- Shows momentum and overbought/oversold levels
- Crossovers of %K and %D give signals
- Effective in ranging markets
- Divergences can predict reversals
What's a good value?
> 80
Overbought
Near top of range, may reverse down
50-80
Bullish
Upper half of range
20-50
Bearish
Lower half of range
< 20
Oversold
Near bottom of range, may reverse up
Real-world example
%K crossing above %D from below 20 is a bullish buy signal.
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