h1>Stochastic Oscillator trading indicator Forex (Stochastic, Lane's Stochastic).

In statistic, "Stochastic" term fall into category of random variables. When George Lane developed Stochastic Oscillator, he implied something other. Lane's Oscillator - it's trading indicator of price movement, which detailed described and world wide spread by Lane (George Lane, Investment Educators, PO Box 2354, Des Plains, IL). Stochastic Oscillator calculates by moving data frame, so its values can vastly change in result of leaving old data from calculations. So Stochastic Oscillator twice smoothed by moving averages. Stochastic Oscillator can be calculated by formula:
K = 100*(C - L)/(H - L),
where:
K - current price position inwardly last trade range on time
C - last close
L - minimum low during n bars
H - maximum high during n bars

Lane advised to choose n in range between 5 and 21

Then Lane smoothing K twice by simple moving averages trading indicators with period 3: %K it's 3-period moving average for K and %D it's 3-period moving average for %K. After smoothing K do not interested for analytics any more, all the analysis is apply to %K and %D.

Lane suggest some criteria for Stochastic Oscillator interpretation:
1) Signals about overbought and oversold
2) Convergence and Divergence
3) Crossing %K and %D

Lets consider signals for buy. When the price moving down, the one of conditions for buy signal will be signal about oversold, i.e. %K less than 25% level. The most signal is coming when %K less than 15% - extremely oversold. Remind, that the condition for buy signal appearing implied, not exactly buy signal. When condition about oversold was satisfied, forex analyst try to find positive divergences. If the price move to the new minimum, but %K values do not fall lower than previous minimum, it's a positive divergence, says about possibility upstairs price moving soon.

The real signal for buy coming when %K become more than %D. Lane say that the most powerful signal coming when %D turned up to the moment when %D crossed by %K. If more slow %D become to create figure with more high minimums when the price still moving down, find possibility for buy when prices will little moving down next time.

Lets consider signal for buy. When the forex is growing, the first for sell signal it's signal %K about overbought: %K more than 75%. The most powerful signal it's signal about extremely overbought, when %K more than 85%. Remind, that the condition for sell signal appearing implied, not exactly sell signal.

If the first condition satisfied, try to find negative divergences. If the price moving up to the new maximum but %K not, it's negative divergence and signal for possibility to start price moving down. The ultimate signal for sell coming when %K crossed %D.

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