The stochastic oscillator is a momentum indicator that locates the latest close within the high-to-low range of the last N periods, expressed 0–100. The premise, from George Lane, is that in an uptrend closes cluster near the period’s highs and in a downtrend near the lows, so a close low in its recent range can signal fading momentum.
It plots two lines: %K, the raw position in the range, and %D, a short moving average of %K used as a signal line. Readings above 80 are called overbought and below 20 oversold, and the common triggers are %K crossing %D and divergence against price. As with RSI, “overbought” means stretched, not doomed — in a strong trend the oscillator can pin near its extreme for a long time.
The stochastic is a primitive in Secuora’s AI backtester. A stochastic-cross baseline on BTC in Secuora’s research at /strategy lost money over twelve months after fees — oscillator crosses fire constantly, and frequent signals against a trend are a reliable way to feed costs.
Over the last N periods the high is $110, the low is $100, and the close is $107: %K = 100 × (107 − 100) ÷ (110 − 100) = 100 × 7 ÷ 10 = 70.