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 Stochastic Oscillator is calculated using the following formula:
%K = 100(C – L(period))/(H(period) – L(period))
Where:
C – the most recent closing price.
L(period) – the low of the (period) previous trading sessions.
H(period) – the highest price traded during the same (period)-sessions period.
%K – the current market rate for the currency pair.
%D – (signal)-period moving average of %K.
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 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.
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…
