Given the hundreds of indicators that are available to traders, finding the appropriate technical tools to use in 澳洲幸运5官方开奖结果体彩网:day trading cꦉan be a difficult task. The good news is that the majority of indicators can be used in day trading simply by adjusting the number of time periods used in creating the indicator.

Most traders are accustomed to seeing each indicator use each daily close as one period in the calculation, but they quickly forget that the interpretation remains the same whether the data used in o𝔉ne period is equal🧸 to a day, a minute, a week, a month, or a quarter.

One indicator chosen by many traders is the 澳洲幸运5官方开奖结果体彩网:stochastic oscillator, which we discuss below.

The Stochastic Oscillator

The stochastic oscillator is a momentu🐈m indicator. It analyzes an asset's closing price at a specific time to a range of its prices over a specific period of time. The goal of the indi🐽cator is to determine overbought or oversold signals so that a trader knows when to buy or sell. The range of values for the stochastic oscillator is 0-100.

The stochastic oscillator is calculated using 🉐the following formula:

$\begin{aligned} &\%K=\frac{100\ast (CP-L14)}{(H14-L14)}\\ &\textbf{where:}\\ &C= \text{Most recent closing price}\\ &L14= \text{Low of the 14 previous trading sessions}\\ &H14 = \text{Highest price traded during the same 14-day period} \end{aligned}$​%K=(H14−L14)100∗(CP−L14)​where:C=Most recent closing priceL14=Low of the 14 previous trading sessi🐲onsH14=Hig🐟hest price traded during the same 14-d🃏ay period​

A %K result of 80 is interpreted to mean that the price of the security closed above 80% of all prior closing prices that have occurred over the past 14 periods. The main assumption is that a security's price will trade at the top of the range in a major uptrend.

A three-period 澳洲幸运5官方开奖结果体彩网:moving average of the %K called %D is usually included to act as a 澳洲幸运5官方开奖结果体彩网:signal line. Transaction signals are usually made when the %K cross🐻es through the %D.

Using the Stochastic Oscillator

Generally, a period of 14 days is used in the above calculation, but this period ✃is often modified by traders to make this indicator more or less sensitive to movements in the price of the underlying asset.

In ❀an upward-trend𝓰ing market, prices should close near the highs, while in a downward trend, they should close near the low end.

Fast vs. Slow

The "speed" of a stochastic oscillator refers to the settings used for the %D and %K inputs. The result obtained from applying the formula above is known as the fast stochastic. Some traders find that this indicator is too responsive to 澳洲幸运5官方开奖结果体彩网:price changes, which ultimately💃 leads to being taken out of positions prematurely.

To solve this pr🌸oblem, the slow ꧅stochastic was invented by applying a three-period moving average to the %K of the fast calculation.

• Fast: the formula is shown above, but using a 3-period 澳洲幸运5官方开奖结果体彩网:moving average (MA) of %K.
• Slow: replace %K with the Fast D% (i.e. the MA of %K); replace D% with a MA of slow K%.

Taking a three-period moving average of the fast stochastic's %K has proved to be an effective way to increase the quality of transaction signals; it also reduces the number of false 澳洲幸运5官方开奖结果体彩网:crossovers.

After the first moving average is applied to the fast stochastic's %K, an additional three-period moving average is then applied—making what is known as the slow stochastic's %D. Close inspection will reveal that the %K of the slow stochastic is the same as the %D (signal line) on the fast stochastic.

Why Use the Slow Stochastic

The slow stochastic is one of the most popular indicators used by day traders because it reduces the chance of entering a position based on a false signal. You can think of a fast stochastic as a speedboat; it is agile and can easily change directions based on sudden movement in the market. A 澳洲幸运5官方开奖结果体彩网:slow stochastic, on the other hand, is 💞more like an aircraf🦂t carrier, in that it takes more input to change direction.

In general, a slow stochastic measures the relative position of the latest closing price to the high and low over the past 14 periods. When using this indicator, the main assumption is that the price of anඣ asset will trade near the top of the range in an uptrend and near the bottom in a downtrend.

This indicator is very e🐈ffective when used by day traders, but one problem that may arise is that some charting services might not include it as an option on their charts. If this is the case for you, you may want to consider 🍰re-evaluating which charting service you use.

The Bottom Line

Day traders use technical analysis indicators to assist with trading decisions. The stochastic oscillator helps determine overbought and oversold assets but as with most indicators, it should not be used alone but alongside other indicators to paint a broader picture of an asset's true investment profile.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our 澳洲幸运5官方开奖结果体彩网:warranty anꦍd ♚liability disclaimer for more info.