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The stochastic oscillator

Where the latest close sits inside the range a stock has actually traded in over the last 14 sessions — 0 at the bottom, 100 at the top.

The stochastic oscillator answers a narrow, concrete question: of everything this stock has traded at over the last 14 sessions, where did it close today? It takes the highest high and the lowest low of that window and reports the latest close as a position between them, from 0 — closing exactly at the low — to 100, closing exactly at the high. That number is called %K. A second line, %D, is simply the average of %K over the last three sessions, and it moves more slowly, so comparing the two shows whether the position is still sliding or has begun to turn. The convention is that below 20 is "oversold" and above 80 is "overbought", and those bands are what almost every chart means when it draws the indicator.

It is easy to mistake this for a second version of RSI, because the two sit side by side and share the words "overbought" and "oversold". They measure different things. RSI is about SPEED: it weighs the size of recent up-moves against the size of recent down-moves, so it is high when a stock has been rising quickly. The stochastic is about POSITION: it does not care how fast the price got where it is, only where that is relative to the range. The two therefore disagree often, and the disagreement is informative rather than a fault. A share that drifts gently lower for three weeks ends up at the bottom of its range with a perfectly ordinary RSI; a share that falls hard for two days may still close in the middle. Across the companies stocks-llm covers, only about one in seven of the stochastically-oversold list is also oversold on RSI.

Two limits are worth stating plainly. First, neither reading is a signal. A company in genuine decline makes new lows repeatedly and reads oversold the entire way down, and a company in a strong advance closes near the top of its range week after week. The indicator describes where the price has been, not where it is going. Second, because it is a position rather than an average, it moves a great deal from day to day: the set of companies sitting below 20 can roughly double or halve within a fortnight, so this is a snapshot rather than a standing list. stocks-llm computes it nightly from delayed daily-close prices, split-adjusted, and declines to report it where the 14-session range is so small that a position inside it would mean nothing. Nothing here is advice.

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Related terms

  • Moving average (50-day & 200-day) — A moving average smooths a stock’s price by averaging its recent closing prices — the 50-day and 200-day are the most-watched trend lines.
  • Golden cross — A golden cross occurs when a stock’s 50-day moving average crosses above its 200-day moving average — a widely-watched long-term momentum shift.
  • Death cross — A death cross occurs when a stock’s 50-day moving average crosses below its 200-day moving average — the bearish counterpart of a golden cross.
  • RSI (Relative Strength Index) — The RSI is a 0–100 momentum oscillator that measures how fast a stock’s price has risen or fallen recently; readings below 30 are "oversold" and above 70 "overbought."
  • Overbought & oversold — "Overbought" and "oversold" describe a stock whose price has moved up or down unusually fast recently — most commonly measured with a 14-day RSI above 70 or below 30.

See more terms in the stocks-llm glossary.

Informational only — NOT financial advice. This is an educational definition, not a recommendation to buy or sell anything. Metrics on stocks-llm are delayed data and may be missing or stale. Always verify information independently and consult a qualified financial professional before making any investment decision.

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Informational only — NOT financial advice.

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