Pragmatic Applications of Stochastic Oscillators for Individual Stock Selections: Some Empirical Evidence‪.‬

STOCHASTIC OSCILLATORS According to Webster's New World Dictionary, stochastic is "... designating a process having an infinite progression of jointly distributed random variables." In effect, the stochastic oscillators compare a security's closing price to its price range over a predetermined time frame. This time period is somewhat arbitrarily selected, depending on the user and his (her) investment objectives and investment horizon (Achelis, 1995). The principal use of stochastic applications lies in its attempts to indicate overbought and oversold conditions in different markets (Teixera, 1994). The feature premise of stochastics (Lane, 1984) lies in the view that during periods of price declines, prices tend to close near the bottom of the spreads (i.e., the difference between the high and low prices for the day, week, month, etc.). In periods of advances, price closes tend to accumulate near the tops of the spread (i.e., near the security's high price for the period).