Subject: Technical Analysis - Stochastics

Last-Revised: 21 Jun 2005
Contributed-By: (Original author unknown), Chris Lott (contact me), Martin Clear

This article gives the formula for stochastics. The raw stochastic is computed as the position of today's close as a percentage of the range established by the highest high and the lowest low of the time period you use. The raw stochastic (%K) is then smoothed exponentially to yield the %D value. These calculations produce the original (or "fast") stochastics.

%K = 100 [ ( C - L5 ) / ( H5 - L5 ) ]

%D = 100 x ( H3 / L3 )

A closely related indicator is the Williams %R indicator. The Williams %R tracks stock price momentum in almost exactly the same way as the stochastic indicator. It is a value between -100 and 0 representing where the closing price of today is positioned in the full range of prices (lowest low to highest high) across the input time period. The value -100 indicates that the current close is also the lowest low in the period, and 0 indicates that the current close is also the highest high in the period. Thus the Williams %R value is always exactly 100 less than the Stochastic %K value.

Here are links to pages at Incredible Charts which explain further:

• Stochastic oscillator
  http://www.incrediblecharts.com/technical/stochastic.htm
• Williams indicator
  http://www.incrediblecharts.com/technical/williams_percent_r.htm

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