What does Stochastic Oscillator mean?

The Stochastic Oscillator compares a stock's current closing price to its recent high/low range on a 0-100 scale, similar to RSI.

Stochastic compares the current close to the high/low range over a lookback period, on a 0–100 scale. Like RSI: above 80 is overbought, below 20 is oversold. The %K line crossing the %D line is a common trigger.

Stochastic Oscillator example

If a stock's 14-day range is $40 to $50 and it closes at $48, the stochastic reading is (48 − 40) ÷ (50 − 40) × 100 = 80 — at the top of its recent range, the usual "overbought" level.

Common beginner mistake

Trading every move above 80 or below 20. In a trending market the oscillator can stay pinned at one end for a long time.