Stochastic Oscillator on a Live Gold Chart

What it shows

A separate 0 to 100 pane holds %K, the quicker line, and %D, its 3-candle average. Guide lines at 80 and 20 frame the edges, with 50 between them.

How Pravex works it out

1. Take the highest high and the lowest low of the last 14 candles, the current one included.
2. Raw value = 100 × (close − lowest low) ÷ (highest high − lowest low). If the high and low of the window are the same, there is no value.
3. %K is a simple average of the raw value over the %K averaging setting. The default is 1, so %K is the raw value unless you raise it.
4. %D is a simple average of %K over the %D averaging setting, 3 by default.

Settings

Setting	Default	What changing it does
High-low window	14	How many candles supply the highest high and lowest low. Cut it to 5 (an example) and one candle can send the line from the floor to the ceiling.
%K averaging	1	How many raw values are averaged to get %K. At 1 nothing is averaged and %K is the raw value. Raising it to 3 gives a calmer %K.
%D averaging	3	How many %K values are averaged to get %D. A bigger number makes %D slower and the gap between the two lines wider.

How traders read it

A close at the top of the recent range gives a high reading and a close at the bottom a low one. Above 80 the close is pressed against the top of its range, below 20 against the bottom. That describes where the close sits in the window. It is not an order to sell or buy.

The two lines are read against each other. When %K crosses %D from below, the close has been gaining ground inside the range; from above, losing it. Crosses that happen near the edges get the most attention.

With %K averaging left at 1, %K is jumpy and crosses %D often. Raising it to 3 is a common way to settle the line, at the cost of a later signal.

When it misleads

In a strong trend the close keeps landing near the top or bottom of its range, so the Stochastic can stay above 80 or under 20 for a long time while price carries on. On short gold timeframes the two lines cross dozens of times a day and most crosses lead nowhere. The reading says nothing about how big the range is, so a quiet stretch and a wild one produce the same 0 to 100 picture.

Questions and answers

What are %K and %D?

%K is the line that tracks where the close sits in the high and low range. %D is a simple average of %K, 3 candles by default, so it follows %K a little later.

Why is my %K so jumpy?

Pravex starts with %K averaging at 1, which leaves the raw value unaveraged. Raise it to 3 and %K is averaged over 3 candles.

Where is the close when the Stochastic reads 80?

The latest close sits 80% of the way up the range between the lowest low and highest high of the window. It says the close is near the top. It does not say price must turn.

Is the slow Stochastic a different indicator?

No, it is this one with more averaging. The slow version is what you get when %K averaging is 3 instead of 1: the raw value is smoothed once to make %K and again to make %D. Pravex ships the fast form, so raise %K averaging to 3 for the slow one.

Related: Stochastic RSI, Relative Strength Index, Williams Percent Range, Moving Average Convergence Divergence, every indicator.