What is the Stochastic Oscillator?

The Stochastic Oscillator is a technical analysis tool created by George Lane in the late ‘50s. The Stochastic Oscillator actually is a momentum indicator that compares current price levels to the High and Low previous price range. The Stochastic Oscillator clearly follows the speed of the momentum. The Stochastic Oscillator aims to indicate price reversals before they actually occur. Additionally, it can be used by traders for identifying overbought price and oversold price levels.

 

Stochastic Oscillator Calculation

  • Stochastic Oscillator = 100{(Close – Low14)/(High14 - Low14)} = %D

-Low14 = the lowest of the 14 past periods

-High14 = the highest of the 14 past periods

-%D = 3-period moving average of Stochastic Oscillator

 

 

 

Stochastic Oscillator Default Settings

The default setting when using the Stochastic Oscillator is 14 periods (14,3,3). According to each timeframe, Stochastic Oscillator periods may concern daily, weekly, monthly, or even intra-day periods.

What is Williams %R?

Williams %R (or %R) is a technical analysis tool (momentum oscillator) created by Larry Williams in 1973. It is used to determine overbought/oversold market levels but may create also buy/sell trading signals.

Williams %R is similar to the Stochastic Oscillator except for the fact that Williams %R has an upside-down scale and takes values from -100% to 0%. Williams %R measures the close levels relative to the highest high for a certain period. Stochastic Oscillator measures the close levels relative to the lowest low for a certain period.

 

Williams %R Default Setting

The default setting for Williams %R is 14 periods.

 

Williams %R Price Range & Explanation

Williams %R values are corresponding to a range from 0% to -100%.

◘ Values from 0% to -20% are indicating overbought market levels

-When Williams %R = 0% then the last close is equal to the highest price level for the period

◘ When Williams %R is at -50% then a new trend is expected to be formed

◘ Values from -80% to -100% are indicating oversold market levels

-When Williams %R = -100% then the last close is equal to the lowest price level for the period

In the following chart, we may see the indications of Williams %R (14 periods) on EURUSD related to the indications of Stochastic.

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