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In this equation C is today's close, L n the lowest low for the last n days,
and H n is the highest high over the same n day trading period. For short-term
trading purposes Lane recommends that n should be 3. A 5-period %K line
has also become quite popular. Since the time span is longer, the indicator is
less volatile than the formula using the 3-period calculation. Of course, other
time periods may also be used. In the March 1991 edition of Technical Analysis
of Stocks and Commodities, editor Thom Hartle uses a 14-day span and makes
the point that some traders extend the period as far as twenty-eight days.
It is important to note that the Stochastic differs from other indicators
that we have considered so far because it requires the high and low for the
trading period in question as well as the closing price. The %D line is a
smoothed version of %K. Its calculation uses the following formula: