Stochastic Oscillators can be used as both short- and...

Stochastic Oscillators can be used as both short- and intermediate-term trading oscillators depending on the number of time periods used when calculating the oscillator. When displaying a short term Stochastic Oscillator (e.g., 5-25 days), it is popular to slow the %K value by 3-days.
There are several ways to interpret a Stochastic Oscillator. Three popular methods include:

· Buy when the Oscillator (either %K or %D) falls below a specific level (e.g., 20) and then rises above that level, and sell when the Oscillator rises above a specific level (e.g., 80) and then falls below that level. However, before basing any trade off of strict overbought/oversold levels it is recommended that you first qualify the trendiness of the market using indicators such as r-squared (see r-squared) or CMO (see Chande Momentum Oscillator). If these indicators suggest a non-trending market, then trades based on strict overbought/oversold levels should produce the best results. If a trending market is suggested, then you can use the oscillator to enter trades in the direction of the trend.

· Buy when the %K line rises above the %D (dotted) line and sell when the %K line falls below the %D line.
· Look for divergences. For example, where prices are making a series of new highs and the Stochastic Oscillator is failing to surpass its previous highs.