Look at it this way %K is the short-term trend say 5 days and %D is a 3 period moving average of %K. So maybe it carries 8 or 9 days data in it. What you are looking for to act, assuming you have divergence from price, are in the appropriate crossover area, and a cycle bottom is due. You want to act when both the short and the long-term trends turn simultaneously. You do not want to act with the short term in your favor and the long term still going against you. The right hand cross is when the momentum of the five-day and the nine-day are reacting against the previous trend. Actually it is impossible to have a middle crossing. The prices of the five and nine day would have to go straight up. If this was plotted on a chart with time, the lower line would have to pass through the slower line before it reached the next day. This is really very simple. When you have a bullish diversion, and prices are reaching a cycle low. The faster line will be leading the slower line down. This will put the faster %K line below the slower %D. When the closing prices run into support, they have nowhere else to go but bounce away. The closing prices may rise but the dayÃs lows will remain the same (Cpr). When the momentum of the cycle turns and it brings %K up fast enough to pull the slower %D up with it from the crossover area. When this happens %K will cross %D on the right hand side of the price cycle bottom. This is the signal to act, that Stochastic gives. If zorrosg has not seen a right hand cross, he is using to slow of a variable for %K. Try it the way George Lane developed it, acting only on his signals, and see if you get better results. Stochastics goes not give false signals. It always shows when the closing price is bumping up against support. In a case of extreme force one of Jake BernsteinÃs Stochastic Ãpops,Ã may be happening. The rules for that are to wait until some arbitrary percent has been retraced before acting. Many people act on signals that they made up themselves and try to blame the oscillator for giving a false sign. Stochastic shows what it shows. George Lane himself best explains how to act on it. This is not the complete story, if you or anyone else is interested write me. And I will email you a copy of one of the books from his classroom.
this entire thread makes me cringe. Stochastics are about as useless as tits on a bull. They are training wheels. Most use stochastics when they can't tell by watching price if a market is oversold or overbought. Even then, its wrong most of the time, and on strong uptrending / downtrending days, its 100% useless. if you find yourself entering the market using stocs on days like that, u might as well give your money to charity.
Stochastics does not tell you if you are overbought or oversold. What good would it do to watch Stow for what it does not show. Did you make up that use yourself?
I'm sorry, I must be delusional. These psychotropics I'm taking really mess with my head. I dont know why i was thinking an oscillator reads overbought and oversold conditions. Gee, what a retard I am ! Where's traderzones when u need him, lol.
Yeah that is probably it. You made up that use yourself. In an uptrend, prices tend to make higher highs and the settlement price usually tends to be in the upper end of that time periods trading range. When the momentum starts to slow, the settlement prices will start to fade from the upper boundaries of the range. Stochastics predicts turning points by comparing the closing price of a security to its price range. Prices tend to close near the extremes of the recent range just before turning points. Stochastics turns down at or before the final price high. Stochastics does not predict over bought or oversold areas. No price is so high it cannot be bought, no price so low it cannot be sold. See: Stochastics
So what happens if you bought the top of the market and then shorted the bottom? Sure, you can do it but... !!!