Stochastics

Discussion in 'Technical Analysis' started by shortorlong, Mar 15, 2008.

  1. I know the whole deal about indicators are not a holy grail etc. I don't use an indicator as a sole trigger.

    For those that are using stochastics, I wonder exactly how you are using them. What are the stochastics doing when you decide to make a trade decision?

    Some examples :

    1) When I see the stochs above 80, I am looking for a sell signal, and I won't buy


    2) When I see the stochs cross from above 80 to below 80, I will put on a sell trade

    3) ?


    Just curious how you are using them, what is the thought process? Do you use them to encourage a trade, to discourage a trade?
     
  2. STOCH can be good for watching the cycles of price movement within a trend channel - that is about it imo.
     
  3. Lucrum

    Lucrum

    I feel like a market is "over bought" when there are no longer a sufficient number of buyers anxious enough to buy that they are collectively willing to lift enough offers to drive prices higher. And of course "over sold" would be the opposite.

    Now maybe someone can explain how the following equations accurately determine the over bought or over sold condition of a market. Particularly when, as far as I can tell, it does not measure any actual buying or selling to begin with.

    %K = 100 [ ( C - L5 ) / ( H5 - L5 ) ]

    %D = 100 x ( H3 / L3 )
     
  4. what settings are you using 14,3,3 etc.and is it full, fast or slow...great post...
     
  5. Stochastic is a useful tool if it is combined with some trend indicators like channels or moving averages which define a trend and used to pinpoint when a countertrend move exhausts itself.

    It works even on a micro scale in liquid markets down to the 30sec barchart level
    in ES and CL

    It can also be used, like any other oscillator to define swings to reveal price structure.
     
  6. nkhoi

    nkhoi Moderator

  7. irniger

    irniger

    Stochastic and CCI are very good forewarners of a change in trend. A kind of pre-signal which is confirmed by an EMA setting. They are, for me at least, no good in determining oversold or overbought (20/80) conditions. I use slower settings like Stoch 14,14,3 (instead of 14,3,3) and CCI 15,9 to show less hectic.

    Happy trading, Felix
     
  8. You might buy when the stochastic value is greater than 50 and sell when the stochastic value is less that 50. The stochastic formula used in this way is trend following.

    Or buy above 80, sell below 20.

    You might explore different values and time constants, discover what combinations test best for different security price series.

    http://www.elitetrader.com/vb/showthread.php?s=&postid=1755652
     
  9. Like most indicators there are several points to remember when using stochastics...
    1. If they trigger early it's called divergence
    2. If they trigger on time it's called prefection
    3. If they trigger late it's politely called "too late to be of any use"
    4. Above 80 triggers a Pop Buy signal
    5. Below 20 triggers a Pop Sell signal
    6. Above 80 expect either 1., 2., 3., or 4. above to occur
    7. Below 20 expect either 1.' 2., 3., or 5 to occur
    8.The above all assumes the market is in the best Condition for Stochastics to be used i.e. chop
    9. If the market is trending the stochastic will remain in overbought or oversold mode making it poor at early trend identification and quite disasterous through the trend period
    10. To further refine ones stochastic use try using different closing calaulations like H/L 4 etc which will alter the signal timing
    11. If you combine/overlay different time periods you will get a better picture of how to take advantage of the above contradictions and discover the hidden signals that make most conclude indicators are useless
    12. Don't expect many people who thru blood sweat and tears have cracked how to make these things work to invite you to a free lunch
    13. Notwithstanding point 12. try researching Buffy's use of superimposed stochastics in dacharts.com daily charts archive to see if it inspires some new creativity
    14. I wouldn't trade without stochastics, and I won't tell you how I do it, but I have pointed out why the vast majority fail to make use of these powerful indicators and how to begin a journey to discover the solution to every weakness in points 1. to 10.
    15. Stochastics on their own are guaranteed to break your bank
    16. Understandiing how price movement triggers a stochastic cross allows you to read price and take the market offer before the cross occurs
    17. Last clue - if you discover market momentum/emotion you will know when to look at a stochastic and when to ignore it. A lot of the time stochastic signals are only noise and attempting to read it will break your heart
    18. Last point: if it was as easy as sticking any indicator under price and taking signals to make a profit everyone could be a profitable trader. There is no such indicator but the world is full of interesting people who would rather search for such a holy grail, though it take them forever, than spend the same time reading, researching, experimenting, creating and bringing something valuable out of much personal testing.

    Hope this encourages and helps a seeker. It won't stop grail hunters.
     
  10. Yoo Hoo and Hook n Sinker make good points.

    A writer named Larry Swing --yes, that's his name-- wrote about the stochastic pop as did Jake Bernstein as did by David Steckler

    The 'pop' is a method and not, REPEAT NOT, a stand alone trading system. Integrate it into your current repetoire but don't bet the mortgage on it!!!

    b
     
    #10     Mar 16, 2008