The Stochastic Oscillator is a Momentum indicator comparing the closing price of a security to the range of its prices over a certain period of time. The sensitivity of the oscillator to market movements is reducible by adjusting that time period or by taking a Moving Average of the result.
The general theory serving as the foundation for this indicator is that in a market trending upward, prices will close near the high, and in a market trending downward, prices close near the low. Transaction signals are created when the %K crosses through a three-period Moving Average, which is called the %D.
The usual average that is used for stochastic calculation is simple Moving Average (SMA). This (extended) version allows you to use any of the 4 basic types of averages (default is SMA, but you can use EMA, SMMA or LWMA too) – some are “faster” then the default version (like EMA and LWMA versions) and SMMA is a bit “slower”, but this way you can fine tune the “speed” to signals ratio.
The DSL (Discontinued Signal Line) version of Stochastic does not use a Moving Average in a classical way for signals, but is instead calculating the signal lines depending on the value(s) of the stochastic. Thus, we are having two things: a signal line and a sort of levels that can be used for overbought and oversold estimation.
Stochastic extended - indicator MetaTrader 5 Basics: MetaTrader built-in stochastic allows us to chose only two "prices": close/close low/high Obviously we are missing the rest of…
