Chartered Market Technician (CMT) Level 1 Practice Test 2025 – The Complete All-in-One Guide to Exam Success!

The stochastics indicator is a momentum-based oscillator used in technical analysis that measures the relative position of a security's closing price in relation to its price range over a specific period of time. This indicator helps traders identify potential overbought or oversold conditions, which can indicate potential reversals or continuations in price trends.

By assessing where the closing price falls within the range between the highest high and the lowest low over the set period (commonly 14 periods), the stochastics indicator generates values between 0 and 100. A reading above 80 typically suggests that a security may be overbought, while a reading below 20 indicates oversold conditions. These thresholds guide traders in making more informed decisions regarding entry and exit points.

While options discussing overall market trends, trade volume, or stock strength provide different insights, they do not specifically pertain to the primary function of the stochastics indicator, which is focused on the closing price's relative position.