In trying to understand what determines stochastic indicators, it would be best to review what such an indicator is and how it affects overall securities trading. When analyzing securities trading, the stochastic indicator is a basic measurement of momentum. Initially coming to the fore in the early 1950’s, stochastic refers to where a current price is in reference to where it has been over a measurable period of time. The use of this stochastic momentum strategy seeks to predict, and forecast, certain turning points in price.
In real time, what determines stochastic indicators is the momentum of a price and observing the speed at which a price moves. According to the strategy, momentum begins to shift on a price long before there is movement, or change, on a price. Because traders can measure the momentum of price, it becomes easier to see where a price is headed and to adjust their strategy accordingly especially if the momentum indicates a fall in the price.
Another consideration for what determines stochastic indicators is the traditional 14 periods in which price movement is studied. The periods can be broken up into weeks, months, or even days. This period of observation can assist in determining if certain levels have been oversold or overbought by closely following the movement of %K and %D in the charts.
One final observation for what determines stochastic indicators is to look for bear and bull divergences. A divergence comes into being when price movement cannot be checked and determined by the stochastic oscillator. The oscillator’s range is between zero and one hundred so a bear divergence can be identified if the oscillator comes in under 50 with the bull divergence breaking out over the 50 mark on the charts.