The Full Stochastic Oscillator compares the most recent closing price for a security against its relative price range over a specified period.

Crossovers of the two lines in the study often generate signals indicating a reversal of the current price trend for that security.

A reading of 100 indicates that the security closed at its trading high during a given period; a reading of zero indicates that the security closed at its given low during the period.

 A reading of 80 or higher may indicate an overbought condition (price decline may be due), while a reading of 20 or lower may indicate an oversold condition (price rise may be due).

Some technical analysts buy when the "fast" line on the Stochastic Oscillator, the %K, moves up past 20. Similarly, they sell when the %K peaks and turns below 80.

In general, buy and sell signals are also formed when %K falls below (sell) or rises above (buy) the %D. The %D is usually a short-term (e.g., three-period) Simple Moving Average of the %K, so crossover signals are common and may not be consistently reliable.

Buy and sell signals also arise when the %K and the security's price experience a divergence and the %K is in oversold/overbought territory. A bullish divergence situation occurs when a security's price reaches lower lows while the %K forms a higher low. The buy signal may appear when the %K crosses above the 20 level.

 A bearish divergence situation occurs when a security's price reaches higher highs while the %K forms a lower high. The sell signal may appear when the %K crosses below the 80 level.

All three parameters can be customized. The 14, 1, 3 default parameters plot what technical analysts commonly refer to a as a Fast Stochastic, which generates frequent buy/sell signals.

Changing the middle parameter to 2 or higher smoothen the %K (fast) line, creating %K and %D lines that are less responsive to sudden price fluctuations.