The Stochastic is a momentum indicator that was developed by George C. Lane in the fifties and is similar to the RSI, but more volatile

It compares the closing price of a candle with previous price levels to determine if the price is overbought or oversold. When it increases, the bulls drive the price up, and when it decreases the bears are more present in the market.

Overbought zones are areas where the price has increased a lot in a small period of time. Then, assuming that the price is overbought and that it can have a trend reversal or correction. Therefore signaling a sell.

Likewise, oversold zones are areas where the price has decreased sharply in a relatively small interval of time. They are interpreted as buy points because the price is likely to increase afterwards.

stochastic stoch indicator