# Stochastic Oscillator Formula: Understanding Forex Trading

#### Stochastic Oscillator Formula: Understanding Forex Trading

Stochastic oscillator is a popular tool among traders for indicator/” title=”Maximize Your Forex Success with macd mt5 Indicator!”>technical analysis in the forex market. This indicator displays the level of purchasing or selling momentum of an asset, often with the intent of predicting price direction. The formula-excel-a-comprehensive-guide/” title=”Schaff Trend Cycle Formula Excel: A Comprehensive Guide”>stochastic oscillator formula is a simple mathematical calculation that produces a smooth curve across a chart. In this article, we’ll explain how this formula is used to create this indicator and offer insight into how forex traders can utilize this tool to maximize their trading strategies. The Stochastic Oscillator is an indicator used to identify potential overbought and oversold conditions in the market. It is calculated using two lines, the %K and %D. The %K line is simply %K = 100 x [(Current Close – Lowest Low)/(Highest High – Lowest Low)] and the %D line is a three-period moving average of the %K line. A popular buy signal comes when the %K line crosses over the %D line. This signals that the market is oversold and may soon reverse course and begin to trend upwards. A sell signal occurs when the %K line crosses below the %D line. This signifies that the market has become overbought and may soon reverse and begin to trend downwards. As with any technical indicator, the Stochastic Oscillator should not be used by itself, but as part of an overall strategy.