Börsenlexikon: Stochastics

The stochastic indicator is based on the observation that during an upward movement the prices are closer to the daily highs, whereas during a downward movement the prices are closer to the daily lows. The stochastic indicator compares the respective closing price in relation to the trading range (difference between high and low) of the selected trading period. The stochastic indicator is especially useful for detecting reversal points in sideways movements and slight trend phases. It is not useful in periods with pronounced trends. The indicator should only be used in conjunction with trend-following or trend-confirming indicators.