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Market Intelligence › Basic Terminologies
The oscillator's logic, and the same old lie about overbought
Published by The Retail Trader · AUG 05, 2026 · Indicators
Stochastic answers one simple question — within the range of the last few days, where was today's close, toward the top or toward the bottom. It turns that position into a number between zero and one hundred.
The high and low of a chosen period are taken, and where today's close sits within them is worked out as a percentage. A smoothing line is also placed over it.
So it is an indicator of position, not of momentum — where the close is in the range, nothing more.
The same misunderstanding arises here as with RSI:
• A high value means the close is settling toward the top of the range — that is strength, not weakness.
• In a strong trend this indicator can stay stuck high for a long time.
• Taking a counter trade just because it is high is fighting the trend.
• Crossover signals work better in range-bound markets.
Every oscillator stands on a single assumption — that price will return toward its average. That assumption is true in a range and false in a trend, and this one point fully explains when all of them are right or wrong.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no guaranteed-return claim, and is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.