Stochastic oscillator is a momentum indicator within technical analysis that uses support and resistance levels as an oscillator. George Lane developed this indicator in the late 1950s. The term stochastic refers to the point of a current price in relation to its price range over a period of time. This method attempts to predict price turning points by comparing the closing price of a security to its price range.
The 5-period stochastic oscillator in a daily timeframe is defined as follows:
Stochastic (/stəˈkæstɪk/; from Ancient Greek στόχος (stókhos) 'aim, guess') is the property of being well-described by a random probability distribution. Stochasticity and randomness are technically distinct concepts: the former refers to a modeling approach, while the latter describes phenomena; in everyday conversation these terms are often used interchangeably. In probability theory, the formal concept of a stochastic process is also referred to as a random process.
Stochasticity is used in many different fields, including image processing, signal processing, computer science, information theory, telecommunications, chemistry, ecology, neuroscience, physics, and cryptography. It is also used in finance (e.g., stochastic oscillator), due to seemingly random changes in the different markets within the financial sector and in medicine, linguistics, music, media, colour theory, botany, manufacturing and geomorphology.