Stochastic is applied for the first time in the 50s, and since then is the most standardized and indicators used by traders.

It is used as an indicator of momentum, it is a mathematical algorithm that determines the processes whose evolution is random, basing their results on probabilities of change. For its inputs and / or outputs sets the overbought or oversold market, being a type oscillator indicator between 0 to 100 measurement by default uses the values between 70 and 30, but more precise usually 80 and 20, the used as a system, resulting suitable for determining the pullback.

Stochastic provides two lines, called% K and% D, K line is properly the stochastic and the% D line is a moving average of% K, which determine when crossing signals.

FORMULA:% K = 100 x (C-Min) / Max-Min

Where C is the value of the last closing, Max is the maximum of the calculation period and Min the minimum for the same period, by default this period is 5 and% D is the moving average of% K 3 periods.

Kingdom crossing lines along with the overbought and oversold creates a system of inputs and outputs very interesting.