Question

Explain "stochastic oscillator" and how this technique might be used by a technical analyst investigating a stock. What is the economic intuition behind the measure?

Answer 1

Stochastic oscillator are favoured technical indicator because it is easy to understand and it has a high degree of accuracy and it will be measuring the relationship between the closing price and the price range over a predetermined period of time.

it can be used as a momentum indicator which is comparing a particular day closing price of a security to the range of price over a certain period of time so it is used in technical analysis when the stock is in uptrend about the closing price will be trending to trade at the high price at the end of the day where as if the price as a downward movement the closing price tend to close at the lows of the day.

It can be used as finding out the overbought and oversold position in a particular stock and it will be used to find out the relative strength of the stock in respect to other indices so it will be helpful in finding out the the upward and downward trend of the stock also and momentum associated with those up side and down side.

Economic intuition behind this measure is that it is a favourite technical indicator as it will be useful in finding out various Trends of stocks as well as particulate sector and it can be easily perceived by various non technical investors as well so it will be helpful in macro Trend analysis also so it is also favoured by the economist