What is a Slow Stochastic

A Slow Stochastic is a technical momentum indicator from the oscillator family that consists of two lines called the %K and the %D lines. The aim of the STO is to find out the current price position taking its range based on the period of bars into account.

It is also a leading, rather than lagging, indicator, but its shortcoming is that it is difficult to know how long in advance the signal is appearing. The Stochastics direction follows the price movement, e.g. the increasing prices cause the Stochastics raise.

Non-confirming or divergent points can also be found out through Stochastics. For instance, a fake situation is observed when the Stochastics does not support the new price increase. Extremely high or low values of Stochastic may also be an indicator of an overbought or oversold market.

The concept of this slow stochastic oscillator is based on observations that, as the market reaches an overbought condition, the closing prices tend to approach the daily highs.