Stochastics Indicator Formula, Settings, Strategy

Stochastics Indicator is a momentum indicator. It shows the location of the close relative to the high-low range over a set number of periods. In the late 1950s, this indicator was developed by George C. Lane. This indicator follows the speed or the momentum of price and the momentum changes direction before price. This was the first and most important signal which is Lane identified. The developer George C. This oscillator also used to identify bull and bear set-ups to anticipate a future reversal because this is range bound which is said by Lane. This technical indicator is useful for identifying overbought and oversold levels.

The traders can know more about Stochastics in their terminal. They can find it in the STUDIES section of Zerodha Kite and it also available in Kite mobile App. The Period is 14 and you can set the value of it high and low. You can also Check the image below to understand how to attach the Stochastics indicator in HDFC Bank share price chart. In this indicator on to any charts likes daily, weekly, monthly or intraday you can attach.

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Stochastics Indicator Settings

Calculation of Stochastics Indicator:

Stochastics is measured with the %K line and the %D line, and it is the %D line that we follow closely, for it will indicate any major signals in the chart.

%K = (C-L5close)/(H5-L5) * 100
%D = 3-day SMA of %K.

C = the most recent closing price.
L5 = the low of the five previous trading sessions.
H5 = the highest price recorded within the same 5-day period.

Usage of Stochastics Indicator:

  • The major usage of Stochastics Indicator is to identify overbought and oversold condition of the market.
  • Most traders use this indicator on the basis of crossover of %D and %K.
  • %D crossing above %K is considered as buy signal and %D crossing below %K is considered as a sell signal.
  • Few traders also use this indicator on the basis of divergence signals.


Stochastics is a favourite indicator of some technical analysts because of the simplicity of its usage and also the accuracy of its readings. This indicator is easy to perceived by seasoned veterans and new technicians both. It tends to help all investors make good entry and exit decisions on their holdings. This indicator can also be used to identify turns near support or resistance.

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