Stochastic is an indicator in technical analysis. The stochastic indicator measures the difference between closing prices in a market within a certain period. It is calculated by taking the lowest and the highest price of multiple previous trading periods, usually fourteen.
%K=( H14−L14) / (C−L14)×100
C = The most recent closing price
L14 = The lowest trading price of the 14 previous trading periods
H14 = The highest trading price during the same 14-day period
%K = The current value of the stochastic indicator
Stochastic can be considered as signals for strong selling or buying. A rise above 80% on the stochastic oscillator indicates an overbought in the market, while a drop below 20% on the stochastic oscillator indicates an oversold in the market.
Because the Forex market is a 24 hours trading market without closing price, traders usually use the closing price of the New York Stock Exchange (NYSE) as the closing price of the Forex Market because the trading volume will fall shortly after the closing of the NYSE.