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The Stochastic Oscillator tries to show where a stock's price closed in relation to its price range over 'n' time periods. Usually displayed as two lines, the Stochastic Oscillator can be interpreted in several ways. The first line is called "%K." while the second line ("%D") is simply a moving average of %K. Traders tend to buy when either %K or %D falls below 20, and then subsequently rises above that level. They also tend to sell when the Oscillator rises above 80 and then falls below that level again, a 'penetration' if you like. Other traders like to trade divergences between price and the Stochastic Oscillator. Many day trading traders like to use the stochastics as a quick and dirty support/resistance calculation, although the complexity of the calculation makes a computer essential for this.

To calculate the Stochastic Oscillator you need to decide on 4 values:- %K Periods, which are the number of time periods used ('n'), %K Slowing Periods, which controls the smoothing of %K (1 is a fast stochastic, 3 is a slow stochastic), %D Periods, which is the number of time periods used when calculating the moving average of %K and %D Method, which can be Exponential, Simple, Time Series, Triangular, Variable, or Weighted. Then, take today's low - lowest low in %K periods, divide by the highest high in %K periods - lowest low in %K periods, multiplying th eresult by 100.

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