George Lane and the Stochastic Oscillator
Lane taught that momentum changes direction before price does, and built the stochastic oscillator to see it.
Trade a real day like George Lane
A real market day with the date hidden. Run the checklist on the chart, then buy, sell or stay out: the real candles answer.
Check every point of the list before you decide. Stay out if the setup is not there.
Who they were
George Lane was a securities trader and educator in Chicago who ran Investment Educators. In the 1950s he worked with a group of futures traders who developed the stochastic oscillator.
He taught the indicator for decades, emphasising divergence and its use with the trend.
Principles and rules
1. Momentum turns first
Like a rocket slowing before it turns, momentum changes before price.
2. Where is the close?
In uptrends, closes tend to be near the top of the range; in downtrends, near the bottom.
3. Divergence
The most important signal for Lane was divergence between price and the oscillator.
4. Use with the trend
Overbought and oversold readings are timing tools in a trend, not reversal signals.
Key lessons
- Overbought does not mean sell.
- Combine the oscillator with a trend filter.
- Divergence plus structure is stronger than either alone.
Strategies from this method
How to practise it
The stochastic pullback strategy page has the rules. In Candlemind add the Stochastic template from My indicators.
Frequently asked questions
What does the stochastic measure?
Where the close sits within the high-low range of the last periods.
What are the standard stochastic levels?
80 for overbought and 20 for oversold.
Summaries and paraphrases of public books and interviews, for education. Not investment advice.