Home > Technical analysis > Technical indicators > Fast Stochastic Oscillator (Fast STO)

Fast Stochastic Oscillator (Fast STO)

The Stochastic Oscillator was developed by the president of Investment Educators, Inc., (Watseka, IL) George Lane. The main notion of Fast STO is that when prices decrease, closing prices tend to be nearer to the lower end of the range. In uptrends the closing price moves towards the upper border of the range.

The Stochastic Oscillator consists of 2 lines - %K line and %D line which fluctuate between 0 and 100 on a vertical scale. The %K which is the main of two is depicted as a continued and unbroken line. The %D line is a moving average of %K. and is depicted as a dotted line. The Fast Stochastic is the average of the last three %K and a Slow Stochastic is a 3-day average of the Fast Stochastic. Use as a purchase/sell signal generator, purchasing when fast moves are higher then slow and selling when fast moves are under slow.

The majority of dealers use the Slow Stochastic Oscillator it provides more trustworthy signals. There are 3 variants of acting after getting the Fast Stochastic Oscillator results:

1. Purchase when the %K line moves over the %D line and sell when the %K line becomes less than the %D line.

2. Sell when the Oscillator moves over the point of 80 and then moves below that level. Purchase when the Oscillator - %K or %D - moves under the point of 20 and then rises back above that level.

3. Find distinctions - prices moving to a series of new peaks as the Stochastic Oscillator can't exceed the previous peaks.