Stoch

How do I read Stoch?

• Above 80 = overbought. The close is in the upper 20% of the recent range. Mean-reversion risk is elevated, but in trends Stochastic can stay above 80 for many bars without reversing.
• Below 20 = oversold. The close is in the lower 20% of the recent range. Bounce candidate, with the same trending-market caveat.
• %K crossing above %D in the oversold zone = textbook long trigger. Crossing below %D in overbought = exit/short trigger.
• %K and %D direction agreement matters: both rising = strengthening bullish momentum; both falling = weakening. Disagreement = unclear regime.
• Bullish divergence (price lower low, %K higher low) = waning downside momentum. Same logic in reverse for bearish divergence.
• Stochastic responds faster than RSI to recent price changes — better for short timeframes, but more prone to false signals in choppy markets.

How is Stoch calculated?

Stochastic compares the current close to the trading range over the lookback period, on a 0–100 scale. A signal line smoothed from %K provides crossover triggers.

1. 1.Identify the highest high and lowest low over the past 14 bars.
2. 2.Compute the raw %K = 100 × (close − lowest_low) / (highest_high − lowest_low).
3. 3.%K = 0 means the close is at the period low; %K = 100 means at the period high; %K = 50 is the midpoint.
4. 4.Compute the %D signal line as a 3-bar simple moving average of %K.
5. 5.Crossovers between %K and %D, especially in overbought (above 80) or oversold (below 20) zones, are the standard timing signals.

What are the default Stoch settings?

How do I plot Stoch in Pine Script?

//@version=5
indicator("Stochastic Example", overlay=false)

lengthK = input.int(14, title="%K Length",     minval=1)
smoothK = input.int(3,  title="%K Smoothing",  minval=1)
smoothD = input.int(3,  title="%D Smoothing",  minval=1)

k = ta.sma(ta.stoch(close, high, low, lengthK), smoothK)
d = ta.sma(k, smoothD)

plot(k, title="%K", color=color.blue,   linewidth=2)
plot(d, title="%D", color=color.orange, linewidth=2)
hline(80, "Overbought", color=color.red,   linestyle=hline.style_dashed)
hline(20, "Oversold",   color=color.green, linestyle=hline.style_dashed)

Pine's ta.stoch() returns the raw %K only — you smooth it yourself with ta.sma(). Setting smoothK=1 gives you Fast Stochastic; smoothK=3 gives the more common Slow Stochastic. Plotting both %K and %D with horizontal lines at 80/20 makes the standard crossover-in-extreme-zone setup visually obvious.

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