The oscillator known as Stochastics is based on the observation that a stock which is advancing will tend to close nearer to the high of the day than the low. The reverse is true for declining stocks. It compares today's close to the highest high and lowest low of the last five days. This pattern is often present when stocks are in a trading range. It essentially measures the frequency with which price closes tend to accumulate near either end of the price bar on a bar chart.
Traders use divergence between the lines as indications of overbought or oversold conditions.
They also consider the absolute level to be an important indicator. All statements and expressions are the opinion of Choice Capital Management and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. Any securities trading or investing carries a certain degree of risk. The user of this site should proceed with caution and be responsible for researching the featured securities by their own account before making any investments. All trading system results are based on back testing the system over the years shown, not real trades executed.