How to Interpret the %K and %D Lines on a Stochastic Oscillator

A stochastic oscillation chart helps stock market investors make decisions about buying, selling, or holding on to stocks. There are several ways to interpret the oscillations in %K, %D, and the price of the stock. See "How to Calculate Stochastics and Make a Stochastic Oscillator Chart" for details on how to compute Fast %K, Slow %K and Slow %D using closing price data. You can also use Had2Know.org's free online stochastic oscillator calculator.

When to Buy

On the stochastic indicator chart, look for the instances where the Fast %K line crosses and rises above the Fast %D/Slow %K line at a trough. Alternatively, look for instances where the Fast %D/Slow %K line crosses and rises above the Slow %D line at a trough. These intersection points are when you should buy a stock.

The rationale? When the fast line rises above the slow line at a trough, it indicates that the price is now on the rise after hitting its low.

Another buy indicator is when the lines are below the 0.2 level and starting to rise above the 0.2 level.

When to Sell

Look for the instances where the Fast %K line crosses and dips below the Fast %D/Slow %K line at a peak. Alternatively, look for instances where the Fast %D/Slow %K line crosses and dips below the Slow %D line at a peak. These intersection points are when you should sell a stock.

The rationale is the same as above. When the fast line dips below the slow line at a peak, it means the price is now on the decline after hitting its high.

Another sell indicator is when the lines are above the 0.8 level and starting to dip below the 0.8 level.

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