stochastics - Investment & Finance Definition
A tool used in technical analysis that was created by George Lane, who was the president of Investment Educators Inc., in Des Plaines, Illinois. Stochastics, which are used to predict future price movements, are based on the fact that as prices increase, closing prices tend to be closer to the upper end of the price range. However, in downtrends the closing price tends to be near the lower end of the range. To apply the theory, examine the most recent closing prices for the chosen time period, such as five days. Oscillators, which are momentum indicators that measure how strong a price movement is, measure on a percentage basis (0 to 100) where the closing price is in relation to the total price range for a certain number of days. If the percentage is over 70, then the closing price is near the top of the range. If the percentage is under 30, it is near the bottom of the range.