Stochastic Oscillator

1. Compute %K — where the close sits inside the 14-bar high-low range, from 0 at the bottom to 100 at the top — and %D, its 3-bar average.
2. Buy when %K crosses above %D while still below 20: price is pinned near the bottom of its recent range but has just started turning up, which is Lane's oversold reversal.
3. Sell when %K reaches 80, the top fifth of the range.

Worked example. Over 14 bars the range is 90 to 110. A close at 94 puts %K at 20, and as it ticks up through %D the strategy buys. The recovery carries price to 108, %K prints 90, and the position is closed in the overbought zone.

Everything runs on closing prices of the traded timeframe: P is a close, P_t today's close, and N counts bars — one bar is one candle of that timeframe, so 20 bars on a 1h chart is 20 hours.

Stochastic Oscillator (%K, %D)

Where the close sits inside the recent high-low range, as a percentage: 0 means it closed at the very bottom of the last N bars, 100 at the very top. Because it measures position within the range rather than the size of price changes, it reads the bar's high and low directly. %K is that raw reading, smoothed slightly; %D is a 3-bar average of %K used as its signal line.

%K = 100 · (P_t - min(L_N)) / (max(H_N) - min(L_N)),     %D = SMA₃(%K)

Example: Over the last 14 bars the high was 110 and the low 90. A close at 95 gives %K = 100·(95 − 90)/(110 − 90) = 25 — near the bottom of the range. A close at 108 would give 90, close to the top.