Stochastic is an oscillator that detects the momentum of price. As a rule, the momentum changes direction before the price. It is plotted in the chart window and consists of two lines:
- Fast %K
- Slow %D
The behavior of the indicator is interpreted in two ways.
The first one is the crossing of K and D lines. When the K line crosses the D line from top to bottom, it is considered to be a signal to sell (short), when the K line crosses the D line from bottom to top, it is a signal to buy (long).
The second is the exit of both indicator lines from overbought / oversold zones. When both K and D lines cross the oversold boundary (20) from bottom to top, it is a buy signal (long), and when both K and D lines cross the overbought boundary from top to bottom, it is a sell signal (short).
In the Veles platform there are two types of Stochastics – fast and slow.
Fast for K calculations uses 5 periods and is more volatile.
Slow for K calculations uses 14 periods according to the formula of fast Stochastics, and is also smoothed by three periods of SMA.