Stoch Indicator Complete Guide: From Beginner to Expert Level

Many traders have heard of the Stochastic Oscillator (stoch), but few know how to use it effectively. Most people either treat it as a万能钥匙 (universal key) or give up halfway through. Actually, the problem isn’t with the indicator itself, but with not understanding what it is measuring.

What exactly does Stoch do? The core principle explained in one sentence

The Stochastic Oscillator is a momentum indicator used to show the relative position of the closing price within the past N periods. Simply put, it indicates whether the closing price is closer to the high or the low.

If the recent 14 candlesticks have a high of 100, a low of 70, and the current closing price is 95, then the closing price is close to the high, and the stoch reading will be high (close to 100). Conversely, the same applies in the opposite direction.

This is why:

• In an uptrend, the closing price keeps making new highs, and the stoch value approaches 100
• In a downtrend, the closing price keeps making new lows, and the stoch value approaches 0
• During sideways consolidation, the stoch oscillates between 0 and 100

Mathematics isn’t complicated, but understanding the logic behind the formula is essential

The Stoch consists of two lines: %K line and %D line.

%K calculation formula: