Stochastic

Stochastic are an oscillator develop by George Lane.

If price increase closing price tend to be closer at
upper end of the price range
If price decrease closing price tend to be closer at
lower end of the price range.
There are 3 versions of Stochastic Oscillator
1. Fast stochastic
2. slow stochastic
3. Full stochastic

1. Fast stochastic is based on George Lanes orignal formulas for %K
& %D.
%K=100[(C-L14)/(H14-L14)]
C= the most recent closing price
L14= the lowest of 14previous trading sessions
H14= the highest price trade during the same 14 days period.
%D= 3 period moving average of %K
2. slow stochastic-
Slow stochastic are based on fast stochastic but provide a slower,
smoother, response to price movement.
Slow stochastic base on two line, %K and %D.
%K in slow stochastic is what %D in the Fast stochastic and %D is 3
period moving average of %K
Slow stochastic are smoother and are less likely to give false
signal.




Full stochastic
The full stochastic oscillator is a fully customizable
version of the slow stochastic oscillator
User can set the look back period the number of
period s to slow %K and the number of periods for
the %D moving average.
An overbought or oversold market is one where the prices have rise or fall too far and
are therefore likely to retrace.
Overbought and oversold signals are most reliable in a Non trending market which is
sideways phase where prices are make equal highs and lows
if the market is trending , then signals in the direction of the trend are likely are to be
more reliable.
E.G- If prices are in a downtrend , a safer trade entry may be obtains by waiting for
prices to pullback giving an overbought signal and then turn down again.
Divergence between stochastic and the price indicates that an up or down move is
weakening.
Divergent occurs when prices make higher highs but the stochastic are make lower highs.
This is sign that the up move is weakening.
Bullish divergent occurs when prices make lower lows but the stochastic are make higher
lows. This is a sign that the down move is weakening