A stochastic oscillator is a momentum indicator comparing a particular closing price of a security to a range of its prices over a certain period of time. The sensitivity of the oscillator to market movements is reducible by adjusting that time period or by taking a moving average of the result. It is used to generate overbought and oversold trading signals, utilizing a 0–100 bounded range of values.
In this version we have 4 levels
top levels are 95 - extra overbought 80 - semi-extra overbought 70 - standart overbought
bottom levels are 5 - extra oversold 20 - semi-extra oversold 30 - standart oversold
Message by Nicholas Kormanik: "The formula I've adopted was put on the Silicon Investor web site thread by 'bdog'. Basically, I just leave the Slowing Periods (mp3) to 1, so it really plays no part in things. However, if somebody presents a good argument for using other than 1 ... hey, I'm amenable.
Chande, the original inventor, didn't use a moving average on the whole thing. Chande's result was therefore sort of choppy. I guess along the way people decided to add the EMA Periods to smooth things out."