A stochastic oscillator compares an asset's closing price to previous values over a specified time period. By altering the time period or computing a moving average of the result, we can reduce the oscillator's sensitivity to market fluctuations. With a narrow range of values ranging from 0 to 100, it is used to produce trading indications for overbought and oversold conditions. Stochastic oscillators are range-bound, which means that they operate within a range of 0 to 100. Therefore, it can be used to determine whether securities are overbought or oversold.

A stochastic oscillator is a momentum indicator used in technical analysis to compare a security's closing price to its price range over a specific period. Developed by George Lane, it helps identify overbought or oversold conditions in the market. The oscillator ranges between 0 and 100, with readings above 80 indicating overbought conditions and below 20 signaling oversold conditions. It consists of two lines: %K (the fast line) and %D (the slow line, a moving average of %K). Traders use crossovers, divergences, and levels to predict potential price reversals. While effective in ranging markets, it may produce false signals in trending markets, so it's often used alongside other indicators for better accuracy.