Stochastic oscillator

George Lane's stochastic oscillator locates the close inside the recent high-low range. A close near the top of the range pushes %K up. A close near the bottom pushes it down. Lane's point was that momentum shifts before price prints a clear reversal, and that the useful event is %K crossing %D, not a fixed level by itself.

Not investment advice. Nothing here is a recommendation to buy or sell anything. Backtests and historical studies are not guarantees, and a rule that worked in one sample can fail in the next. Trading can lose money. Links are for education, not endorsements. Do your own research.

Rules

The common full stochastic is 14, 3, 3: a 14-period range, a 3-period smooth of %K, and a 3-period %D. In a range, fade extremes when %K crosses back through %D from above 80 or below 20. In a trend, many write-ups only take crosses in the trend direction. Exit at the midline, at the other band, or at a price stop.

Where AI fits

AI can label bars as range or trend first and only then allow mean-reversion crosses. It can also compare the full stochastic with the fast version so a parameter change is not mistaken for a new strategy. Thresholds of 80 and 20 should be tested, not assumed, and the test has to include costs.

Markets

Range-bound futures, FX, and large-cap stocks. Strong trends will ignore the bands.

Timeframes

Hourly to daily. Very fast charts make 80 and 20 ordinary noise.

Risks

A strong trend parks the stochastic above 80 or below 20 and ruins fade entries. The indicator is a range location, close to other high-low oscillators, so it will not confirm them. Smoothing choices change the signals a lot.

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