# Stochastic Oscillator

The Stochastic Oscillator compares a market instrument’s closing price to its price range over a period of time. It consists of two lines:
• %K is the main line – displayed as a solid line
• %D is the moving average over a number of time periods – displayed as a dotted line
The Stochastic Oscillator can be used in several ways:
• Buy when the %K or the %D line falls below a specific level such as 20% and then rises
• Sell when the %K or the %D line rises above a specific level such as 80% and then falls
• Buy when the %K line rises above the %D line
• Sell when the %K line falls below the %D line
• Look for divergences such as when prices are making new highs and the indicator isn’t

### Calculation

The raw Stochastic Oscillator is calculated by taking the difference of the current close and low prices, and dividing this by the trading range over a number of periods.

SO( J ) = ( CLOSE( J )- LOW ( P ) ) / ( HIGHEST( P ) – LOWEST( P ) ) * 100

HIGHEST( P ) is the highest high in P periods

LOWEST( P ) is the lowest low in P periods

The K% line is then calculated by taking the moving average over a number of periods; one period is considered a fast stochastic, and three periods is a slow stochastic.

%K( J ) = MA( SO( J ), Q, T )

Q is the number of periods used for smoothing

T is the type of moving average – simple, smoothed, exponential or weighted

The D% line is then calculated as the simple moving average of %K.

%D = SMA( %K, R )

Q is the number of periods used for the simple moving average

Therefore, there are four parameters to the Stochastic Oscillator:
• P – the number of periods in the highest high/lowest low sliding window
• Q – the number of periods used to smooth the %K line
• R – the number of periods used to smooth the %D line
• T – the type of moving average used to smooth the %K line

You can find more information about technical indicators in the MetaTrader 4 User Guide. Select Help > Help Topics > Analytics > Technical Indicators.