Stochastic oscillators measure a stock's strength in moving up or down. Stochastics move up and down in waves. The stochastic oscillation chart can be used to make decisions about whether to buy, sell or hold on to a stock. There are several ways to interpret the oscillations.
Interpret the chart based on where the blue and red lines cross. The blue line is known as %K and the red line is known as %D.
Look at instances in which the %K, or blue line crosses and rises above the %D line. This indicates the point when you should buy the stock. The instances in which the %K line dips below the %D, or red line, is a signal to sell the stock.
Observe when the %K and %D lines rise above 80 and dip below 20. You may decide to buy the stock if the %K is above 20 percent. Sell the stock if the %K dips below 80 percent. If the %K is at 20 percent or below, the stock is considered oversold and if the %K is at 80 percent of above, the stock is considered overbought.