# The Stochastic Oscillator (STOCH) indicator

The Stochastic Oscillator (STOCH) is a range-bound momentum oscillator developed by George Lane in the 1950s. Lane believed that his indicator was an excellent way to measure momentum, which is essential because momentum changes precede price changes.

The Stochastic indicator is designed to display the location of the close compared to the high/low range over a user defined number of periods. Typically, the Stochastic Oscillator is used for three things; Identifying overbought and oversold levels, spotting divergences and also identifying bull and bear set ups or signals.

Stochastic oscillators measure recent prices on a scale of 0 to 100, with measurements above 80 indicating overbought assets and below 20 meaning oversold assets.

##### Practice: calculate the Stochastic Oscillator

Stochastics can be broken down into two lines; %K and %D. %K is the
percentage of the price at closing (K) within the price range of the number
of bars used in the look-back period.

%K = SMA(100 * (Current Close – Lowest Low) / (Highest High – Lowest Low), smoothK)

%D is a smoothed average of %K, to minimize whipsaws while remaining in the larger trend.

%D = SMA(%K, periodD)

Lowest Low = The lowest price within the number of recent bars in the
look-back period (periodK input) Highest High = The highest price within
the number of recent bars in the look-back period (periodK input)

1. Find the difference between the most recent closing price and the lowest price traded of the previous 14 trading sessions.
2. Find the difference between the most recent closing price and the highest price traded during the same 14-day period.
3. Divide the first difference by the second and multiply that by 100.

Standard parameters are: STOCH (14,3)

14-period for %K and 3-period SMA for %D.

##### How to display STOCH in Sema?

To see the Stochastic Oscillator on a chart, press on the hexagon icon in the right corner of a coin chart. Choose STOCH to display the Stochastic Oscillator on your chart. You can switch between candles and line format right above.