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Stochastic oscillators compare a stock’s closing value to a specified period’s range. Responsiveness differentiates fast oscillators from slow ones. Therefore, fast stochastics have quicker price-action responses than slow alternatives; a feature that makes them popular among short-term investors.
Instead of predicting trends, oscillators show momentum according to price action. This means a trader will spot a trend first before using the stochastic to schedule their market arrival. Stochastics rely on the principle of uptrends closing next to their highs and downtrends next to their lows.
Hence, they’re illustrated on a chart as two lines with the %D side marking slow stochastics and the %K line marking fast stochastics. With 0-100 values, readings past 80 hint at overbought areas while those under 20 signal oversold zones.
Typically, the %K line is the first to change direction followed by the %D line. If the %D line initiates the shift, however, a slow but steady swing is indicated. Likewise, a strong move is in progress when the signal hits the 0 or 100 extremes.