Novice Traders' Notebook  |  SEP 1999

Stochastics by Stuart Evens

Stochastics As originally introduced by George Lane, the classic stochastic oscillator is not a normalized relative strength indicator, like most other momentum oscillators. However, it does use closing price in its calculation, but in a way slightly different from other oscillators. Here’s a refresher for the veteran traders and an introduction for the novices. The stochastics oscillator was originally introduced by George C. Lane in STOCKS & COMMODITIES in 1984. Since then, it has become a popular indicator, included in most technical analysis software programs. That, combined with the wide-spread use of the personal computer, has made stochastics an easy indicator to use. To gain a more complete understanding of the oscillator, let’s look at the idea behind stochastics, then at how it is calculated and interpreted. (To examine historical results from backtesting the indicator on a number of securities, see sidebar, “Historical testing in stochastics.”)

by Stuart Evens