Stochastics

[CatFish]

Stochastics
by greencat

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A technical indicator that compares where a security's price closed relative to its price range over a given time period. The sensitivity to market movements can be reduced by adjusting the number of time periods or by taking a moving average of the result. This indicator is calculated by using the following formula:

%K = 100[(C – L14)/(H14 – L14)]


C = the most recent closing price
L14 = the low of the 14 previous trading sessions
H14 = the highest price traded during the same 14-day period.




The theory behind this indicator is that, in an upwardly trending market, prices tend to close near their high. Whereas, during a downward trending market, prices tend to close near their low. Transaction signals occur when the %K crosses throgh a 3-period moving average called the %D.

Thats all greek to me. As many of you may know this is one of my favorite indicators. Almost every chart I post has a reference to the stochs. I look for trends where the stock has bottomed and sold off at before. I look for the crossover for a change in the current trend and a possibe entry point. But again there are other factors before I just pull the trigger.

Lets take a look at microsoft. I bought microsoft on monday and sold thursday. I didn't make a lot of money but I made some. MSFT was an easy call so plese check out the chart and it shows you what I am talking about. If you want to look at a similar chart check out NOK nokia.

http://tinyurl.com/ch96g

[lovemoney]

I read stockcharts bit and basically what I got was that you wait for two consecutive moves above or below the 80 or 20 respectively before you can determine if a reverse trend is about to happen but that it's not always the case.

I looked at the stochs on the linked chart example. I was able to see that on the slow stoch somewhat but the fast stoch is just too whipsawed for me to make heads or tails out of for any indicators. I realize these things have to be looked at with other indicators. But stochs seems a tough one to get any indicators from for me. The full stoch looked exactly like the slow stoch so I don't really see where those two are used in coordination with each other. But I have to read some more on stochs. They seem a little more complicated for me to grasp than RSI which I find myself looking at alot for overbought and over sold signs.

[CatFish]

looks like someone has been studying. great observation! i will watch fast sto but it is low priority for me on indicators but it helps in that it is just another comformation of change. i found for me while learning is work on one indicator at a time and as i get the grasp of them like you have on the sto's i ad them to my charts. good job money!

[lovemoney]

Thanks Paul. That's just it though, I don't feel I'm getting a comfortable grasp of stochs. maybe I'm making them too complicted, lol. Too many factors involved to remember like %K and %D, and variations on those, fast and slow and full, ugghh lol.

You said you don't watch fast sto too much. So, the slow sto is what you favor?! I can see how the slow is easier to read at a glance since it is a smoother line, What about full? Also, would you say that stochastics and RSI are kinda redundant? I read where it's not necessary to use alot of similar indicators together.

I would however like to gain a better understanding of how to read stochs. I'll keep reading up and hopefully like you've said it'll click. Guess I need to read alot of different sources on this stuff.

[CatFish]

Originally Posted by lovemoney

Thanks Paul. That's just it though, I don't feel I'm getting a comfortable grasp of stochs. maybe I'm making them too complicted, lol. Too many factors involved to remember like %K and %D, and variations on those, fast and slow and full, ugghh lol.

You said you don't watch fast sto too much. So, the slow sto is what you favor?! I can see how the slow is easier to read at a glance since it is a smoother line, What about full? Also, would you say that stochastics and RSI are kinda redundant? I read where it's not necessary to use alot of similar indicators together.

I would however like to gain a better understanding of how to read stochs. I'll keep reading up and hopefully like you've said it'll click. Guess I need to read alot of different sources on this stuff.

i like the fast on 15 minute and ussually dosnt matter to much on the daily. way i studied a lot of the indicators was just type in a search on google Stochastics and read all i can find. each sight tells a little something more to really get a grasp on things. gary likes sto's better then rsi i like to see both

[lovemoney]

Originally Posted by CATFISH

i like the fast on 15 minute and ussually dosnt matter to much on the daily. way i studied a lot of the indicators was just type in a search on google Stochastics and read all i can find. each sight tells a little something more to really get a grasp on things. gary likes sto's better then rsi i like to see both

I can see how the fast would make more sense on short time frames like 15 min with all it's more detailed moves in a short time. I don't really trade on a short span like that. I'm not much of day trading. I look more long term I guess. I see how serious traders like you and Gary would use sto's more. Maybe I'll get there someday, lol. In the meantime I'll keep reading you guys' advice and learning all I can.
That's good advice to read all I can find from different places. Thanks much!

[Klipper22]

One thing that you will learn as you study more and more charts is the patterns that the indicators take in relation to each other. I've read about the technicalities of the sto and how it is determined, but, like Greencat said, it's greek to me. But when I see it positioned a certain way, it helps me see trend shifts when used in conjunction with other indicators.

[greencat]

Love money you are correct in a lot of ways about the sto. What I like to tell people is to use it to your advantage. Many people want to force the indicator to tell them what they want it to. We never use any indicator by itself.

One thing I like to do with the sto is look for patterns. Here is one I look for on bottom plays. Notice how I used other indicators to make this trade work for me. I assure they all want make the kind of move that MBIR did. But when using the Sto on a bottom play and reading it correctly can greatly improve your chances.

[greencat]

Now lets look at another set up. This one has not fell into place for me yet but is on my watchlist. Monday that could all change depending on what it does. I dont like this set up as much and if I did get a bounce up I would take profits pretty quick unless something else happen and it got some momo..

[greencat]

Now look at neom on the weekly chart and the sto. I am not going to post the chart but look how its turned down and looks like mbir did on the #2 at the top sto I posted.. So this would make one believe that is not ready for a big move yet and thus why I would look at a swing trade on it.

Find a beautiful set up on the weekly chart and a bigger overall move will probably occur...