What it is
George Lane popularised the stochastic oscillator in the 1950s. The idea is that in an uptrend closes tend to sit near the top of the recent range, and in a downtrend near the bottom. When that stops happening, momentum is changing.
It moves quickly, which makes it popular for timing entries in the direction of a bigger trend. WickSpeak draws the fast stochastic: %K is the raw reading and %D is its 3 period average. Many platforms add a third smoothing step (the slow stochastic, often written 14, 3, 3); raising the %D smoothing gives a calmer line.
How it is calculated
%K = (close minus lowest low of the last 14 candles) / (highest high of the last 14 minus lowest low of the last 14) x 100. %D = 3 period simple moving average of %K. If the high and low over the period are equal, %K is set to 50.
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| %K length | 14 | 1 to 200 | How many candles the high to low range covers. Shorter is faster and reaches the extremes more often. |
| %D smooth | 3 | 1 to 50 | How many %K values are averaged into %D. Larger values smooth the crosses. |
How to read it
How to trade it
- 1
On a 1 hour US30 chart, confirm an uptrend (price above a rising 50 EMA). Then drop to the 15 minute chart.
- 2
Entry trigger: on the 15 minute chart, stochastic dips below 20 on a pullback and %K crosses back above %D. Enter on the close of that candle.
- 3
Stop below the pullback low, often 30 to 60 points on US30 at 15 minutes.
- 4
Target the previous swing high, or 2 times the stop. Exit early if stochastic crosses down from above 80 before the target.
- 5
The same works on gold; expect a stop of 5 to 10 points at 15 minutes depending on the session.
Price making a new low below the pullback low after the cross cancels the trade. If the higher timeframe trend flips, stop taking long crosses.
On WickSpeak, the stochastic writes a plain-English reading on the live candle: where it sits from 0 to 100, which way %K and %D are crossing, how to trade it and what would prove it wrong. In Playbook you can test: %K crosses above %D, %K crosses below %D, it is above or below a level, or it is between two levels.
WickSpeak also has its own version, the WickSpeak Stochastic. The line is coloured by strength: faint when the reading is weak, glowing when it is strong, mint above its middle line (50) and pink below it. A cross of the middle line is marked only once the candle has closed, so a marker never vanishes after you have seen it. A gold marker shows a stretched reading, meaning the strongest few percent of its own range or past a fixed level. Divergences between price and the oscillator are drawn on both the chart and the indicator, and a chip shows the same reading on a higher timeframe.
Best markets and timeframes
Best for timing entries within a trend on 5 minute to 1 hour charts of gold, US30, NAS100 and forex. Alone in a strong trend it gives many early counter trend signals.
Common mistakes
- Selling every reading above 80 in a strong uptrend.
- Taking crosses in the middle of the range (around 50), which carry little meaning.
- Using it without a trend filter on a higher timeframe.
Works well with
Questions traders ask
What are the best stochastic settings?
14 and 3 is the standard. Scalpers often use 5, 3 for faster turns, and swing traders use 14, 3, 3 slow stochastic. Raise the %D smoothing on WickSpeak for a calmer line.
What is the difference between fast and slow stochastic?
Fast stochastic plots the raw %K and a 3 period average as %D. Slow stochastic smooths %K once more, so its lines are calmer and cross less often.
What does it mean when stochastic is above 80?
The latest close is near the top of its recent high to low range. In a range it often comes before a pause; in a trend it can stay there.
Is stochastic or RSI better?
They measure different things. Stochastic compares the close with the recent range and turns faster; RSI compares the size of gains and losses and is smoother. Many traders use one, not both, to avoid doubling the same signal.