The Stochastic Oscillator is a momentum indicator that compares a stock’s closing price to its price range over a specific time period. It helps traders see if a stock is overbought or oversold.
Key points about the Stochastic Oscillator:
• It moves between 0 and 100.
• Readings above 80 suggest the stock may be overbought.
• Readings below 20 suggest the stock may be oversold.
When the indicator crosses above 20, it can signal a potential buy. When it crosses below 80, it can indicate a sell. Traders often wait for confirmation from other indicators before acting.
The Stochastic Oscillator helps spot momentum shifts before they appear on the price chart. It's especially useful for penny stocks that move quickly and unpredictably.
Example: A penny stock drops and the Stochastic Oscillator falls below 20. It then crosses back above 20 with increasing volume — that may signal a reversal and buying opportunity.