Stochastic Oscillator (STO) is a momentum indicator that traders need to understand.

Many traders are proficient in using STO. But when asked, “What is STO?” or “How does STO work?” there are still explanations to be made. This technical tool has been developed for over 70 years and remains a key choice for traders today because it provides valuable information about price behavior. In this article, we will seriously discuss what STO is, its advantages and disadvantages, and how it can be combined with other tools.

STO is a momentum indicator you need to know

STO is the Stochastic Oscillator — a technical analysis tool in the momentum group that measures the position of the closing price relative to the highest and lowest prices over a specified period (usually 14 days).

STO gives a value between 0 and 100, indicating:

• To show strength: If STO is at 100, it indicates the closing price is at the highest point, signaling a market with no momentum (uptrend fully developed).
• To show weakness: If STO is at 0, it indicates the closing price is at the lowest point, signaling a market with no downward momentum (downtrend fully developed).

STO has two lines — why are there two?

The STO indicator consists of two parts:

1. %K — the fast line: shows the current value of the oscillator.
2. %D — the slow line: a moving average of %K (typically over 3 days).

Having these two lines helps us “see” changes in momentum and identify trend reversals more quickly.

How to calculate STO: Why knowing the formula matters

If you want to understand how to use STO effectively, you need to know the calculation behind it:

%K calculation formula