Stochastic Oscillator
The Stochastic asks one simple question: 'What floor is price on within its recent range?' Take the highest high and lowest low of the last 14 candles as a building's roof and floor, and express where the current close sits between them as a percentage.
In numbers: if the last 14 candles' high is $102,000, the low is $98,000, and price is now $99,000, then price sits $1,000 above the floor of a $4,000 range — the Stochastic reads 25. Equal to the low it reads 0; equal to the high, 100.
The common reading goes: below 20 means 'pressed into the bottom 20% of the recent range — a bounce may come'; above 80 means 'up near the ceiling — could be due for a rest.' It's especially popular for catching the rhythm of price swinging between the top and bottom of a sideways range.
It's easy to mix up with RSI, but they measure different things. RSI is a comparison of force — up moves versus down moves; the Stochastic is position within the range. If price sits quietly at the bottom of a narrow range, RSI can read mid-scale while the Stochastic alone is pinned to the floor — they genuinely diverge at times. In sharp rallies and crashes, though, the two move nearly in lockstep.
Its biggest weakness is trending markets. In a downtrend the range itself keeps sliding lower, so the Stochastic stays glued below 20 for days on end while price keeps falling. Read 'below 20 = bounce soon' and you'll be wrong again and again for the entire trend. Note also that chart apps often display a smoothed version of the raw value (slow stochastic), so the numbers can differ slightly from app to app.
What the data actually shows
Does buying below Stochastic 20 really catch the bounce? Barobara publishes the full outcome distribution of every past case where this signal fired on the Bitcoin chart. It's mostly close to a coin flip — no direction-calling magic showed up. See Stochastic oversold (1h) actual results and Stochastic overbought (1h) actual results. One tip: the Williams %R indicator is essentially the same calculation flipped upside down, so the two fire together almost every time. Both lighting up at once doesn't double the evidence. Compare with other signals in the setup catalog.Common misconceptions
'Buy below 20, sell above 80' circulates like a formula, but it only looks plausible under the assumption of a sideways market where price stays inside a range. The moment a trend starts, the whole range shifts and the signal keeps being wrong. And counting the historical data, picking out the sideways periods in advance is itself the hard part — so the overall record lands near a coin flip. Another misconception is 'my chart app shows different numbers, something's broken' — apps simply differ in whether they use the raw %K or smooth it over 3 candles (slow stochastic); that's the whole difference.
FAQ
Q. Which is the better indicator, Stochastic or RSI?
They measure different things. RSI compares the force of recent up moves versus down moves; the Stochastic measures position within the recent range. Neither is a tool for calling future direction, so 'which is better' is close to a trap question. You can compare both signals' historical records side by side on Barobara.
Q. What are %K and %D?
%K is the raw value described above; %D is %K smoothed with a 3-candle average. Some traders use the crossover of the two lines as a signal. Barobara computes its signals from the unsmoothed raw value (%K), so the numbers can differ slightly from apps that display slow stochastic.