Stochastic secrets

ByRedTraderandcontributors,071008

A.Preamble
Thepurposeofindicatorsappearstobe misunderstoodbyacertainclassoftraders. Anindicatorcomesinhelptoatraderinthe nextways: Ifweconsiderthefactthataclassic indicator(Stochastic,RSI,Bollinger bands,movingaverage,ADXetc.)is usedbyabigpercentoftheactive traders,wecanpointtothe conclusionthatallofthem,seeingat acertaintimeacertainsignal(or almostthesamesignal)oftheclassic indicatortheyuse,willbetendedto actinthesameway.Thisistheresult ofthesocalledmasspsychology.So, anindicator,helpsatraderbyoffering himatipregardingwhatthemajority seesand,asaresult,istendedtodo; Iftheindicatoriscoupledtoa profitablestrategy,itssignal(s) contributetoamuchbiggercertainty; Insomestrategiesitoffersabetter priceoranadvantageousmomentfor thetradeopening.

B.Quotes

The losers teach you, the winners feed you.

Titus

If for a song, a certain instrument will make the song complete, for a trader, an indicator would ennoble the trading style.
RedTrader

"Stochastic helps you to <<listen>> to the market."

Aiyahmarklah

P.S.Everyindicatorhasitslimitations. 1

C.Stochasticsettings

Values Parameters Levels 80 K%=3 D%=2 Slowing=3 MA=simple Pricefield= Low/High 70

ifitmovesunder30butnotunder20, waittogetover30andthenbuy; ifitmovesunder20,waittogetover20 andthenbuy(onalowervolatilityits recommendedtogetover30).

80 70

50

50 30 20

30

20

(Assumingthatthetrader,respectsthebasic rulesoftrendtrading).

2.Knottedcrossing(kc)

D.Entrypoints

Characteristics: itoccursover(oron)the70or80 level/under(oron)the30or20level; makesaknot1; aftertheknot,itreturnsinthe7030(80 20)interval.

1.Classiccrossing(cc)

Characteristics: itoccursoverthe70or80level/under the30or20level; hasonlyoneintersection; aftertheintersection,itreturnsinthe 7030(8020)interval.

Knot=aseriesof(usual)3consecutive intersections,disposedhorizontallyorangled, occurringoutsideoronthe3070interval, intersectionsfromwhichonlythelastisreliable.

Interpretation: Interpretation: ifitmovesover70butnotover80,wait togetunder70andthensell; ifitmovesover80,waittogetunder80 andthensell(onalowervolatilityits recommendedtogetunder70); iftheknotformsabove70butnotover 80,waittogetunder70andthensell; iftheknotformsabove80,waittoget under80andthensell;

iftheknotformsunder30butnotunder 20,waittogetover30andthenbuy; iftheknotformsunder20,waittoget over20andthenbuy.

Interpretation: afterthesignaloverthe70levelits received,then,onabiggertimeframea) thereshouldhavebeenreceivedaclassic crossingbuytypesignal(D.1.)orb)the stochasticshouldbeinthecontinuation status(E.3.); afterthesignalunderthe30levelits received,then,onabiggertimeframea) thereshouldhavebeenreceivedaclassic crossingselltypesignal(D.1.)orb)the stochasticshouldbeinthecontinuation status(E.3.).

80 70

50

30

20

80 70

3.Reversedcrossingoutsidethe3070 interval(outsiderc)
Thereversedcrossingdiffersfromtheknotted crossinginthisway: betweenthefirstandsecond intersectionthereisafreespace(no otherintersections)thatcorrespondson thechartwithatleast2closed candles/bars.

50

30 20

Specifications: forrecommendedclosepointsseeF.

Characteristics: occursoverthe70level/underthe30 level; has2intersections; betweenthefirstandthesecond intersectionthereisfreespace; thesecondsignalisoppositetothefirst.

4.Reversedcrossinginsidethe3070 interval(insiderc)

ReadfirsttheboldedtextfromD.3. Characteristics: occursunderthe70level/overthe30 level;

has2intersections; betweenthefirstandthesecond intersectionthereisfreespace; thesecondsignalisoppositetothefirst.

5.Powerpeak(pp)

Characteristics: consistsof2classiccrossings(asaresult, occursoverthe70level/underthe30 level); onaflatoradescendingtrend(whensell isexpected),thefirstintersectionwillbe ahigherhighandthesecondintersection anewlowerhigh; onaflatoraascendingtrend(whenbuy isexpected),thefirstintersectionwillbe alowerlowandthesecondintersectiona newhigherlow.

Interpretation: afterthesignalunderthe70levelits received,then,onabiggertimeframea) thereshouldhavebeenreceivedaclassic crossingbuytypesignal(D.1.)orb)the stochasticshouldbeinthecontinuation status(E.3.); afterthesignaloverthe30levelits received,then,onabiggertimeframea) thereshouldhavebeenreceivedaclassic crossingselltypesignal(D.1.)orb)the stochasticshouldbeinthecontinuation status(E.3.).

Interpretation: ifonaflatordescendingtrend,itgivesa ccsignaloverthe70level,buttheprice remainsinconsolidation,waitforanother ccsignalunderoronthe70leveland thensell; ifonaflatorascendingtrend,itgivesacc signalunderthe30level,buttheprice remainsinconsolidation,waitforanother ccsignaloveroronthe30levelandthen buy.
Higher high

80 70

50

30 20

Specifications: recommendedifthecorrectionreceiveda classiccrossingbuttheimpulsedidnt, withthescenariothatstochasticcouldnt giveaswellaclassiccrossingsignaland reversedcrossedinthe3070area; becausetheoutsiderctendstobe strongerthantheinsiderc,more attentionandagoodmoney managementarerequired.

Lower high

80 70

50

30 Lower low Higher low 20

6.Divergence
Asmanyotheroscillators,stochasticalsoshows divergences.

8.Minus

Characteristics: thestochasticlines(%Kand%D)merge, formingasinglestraightline,whichcan behorizontalorangled.

7.Arc

Characteristics: outsidethe3070interval,itmakesanarc (alongloopwhichstaysoutsidealong while).

Interpretation: ifitoccursinsidethe3070interval,a) lookforasignalonalowertimeframeor b)waituntilthelinesunmergeandopen apositioninthatdirection(whichshould bethesameasthedirectionindicated beforethemerge)otherwisedontopen anyposition; ifitoccursoutsidethe3070intervala)if youhaveanactiveposition,lockaprofit andwaittheeventualityofcontinuation ofthepreviousmoveorb)treatitlikea cccrossing.

Interpretation: onaflatordescendingtrend,afterit comesunder70,sell; onaflatorascendingtrend,afterit comesover30,buy.

80 70

80 70

50 50 30

30 20

20

Specifications Thisproceduresrequiresabiggerstop loss.

E.Waitingmoments

Interpretation:

1.Endoflownoise(eln)

Characteristics: aperiodwheninthe30level/70level areamanycontradictorysignalswere received.

waitforstochastictotouchthe80level, andafterthatwaitforsignalsspecifiedin D.; waitforstochastictotouchthe20level, andafterthatwaitforsignalsspecifiedin D.;

80

Interpretation: waituntilstochastictouchesthe50level andthenyoucana)waitforsignals specifiedinD.orb)ifitcomesfromlevel 30,buyandifitcomesfromlevel70,sell.

70

50

30 20

80 70

2.Continuationstatus

Interpretation:

50

30 20

assumingthatatleastonetradeisopen andhasitslockedprofit,astimeasona biggertimeframe,anoppositesignalits notreceived,thetradershouldwaitfor thepricetomoveinhis/herfavor.

1.Endofhighnoise(ehn)

Characteristics: aperiodwheninsidethe3070area, manycontradictorysignalswerereceived.

F.Closingpoints

1.Theoppositesignal
Interpretation:assumingthatatleastonetradeis openandhasitslockedprofit,afteronabigger

timeframe,anoppositesignalwasreceived,the tradershouldthinkabouta)readjustingthe amountoflockedprofitorb)closethetradeand waitforareversal.

Titus

Values

Parameters

Levels 80

K%=30 D%=4 Slowing=4 Values K%=5 D%=3 Slowing=3 MA=simple Pricefield= Low/High 80 20 Parameters Levels MA=simple Pricefield= Low/High 20 Titus

G.Otherstochasticsettings

Values K%=8 D%=3 Slowing=3 MA=simple Pricefield= Low/High Parameters Levels 80 20 aiyahmarklah

Values K%=4 D%=2 Slowing=3

Parameters

Levels 80

MA=simple Pricefield= Low/High

50 20

Values K%=14 D%=3 Slowing=3

Parameters

Levels 80

MA=simple Pricefield= Low/High

50 20

Values K%=14 D%=4 Slowing=7

Parameters

Levels 80 20

MA=simple Pricefield= Low/High