Great topic, indeed. The stochastic indicator is presently one of my favorites
It's just that it takes a while to get a real understanding of what it can do for you. For me the lights went on once I understood that you should not just use it as an overbought/-sold indicator, but also as a
momentum indicator, where you take certain levels of K and/or D as indications of a trend being strong/weak, such as when being above/below 80/20.
Another great article about this indicator can be found at
http://stockcharts.com/school/doku.p...tic_oscillator
Especially for Slow versus Fast versus Full Stochastics.
This following phrase of the first post had me wondering for a moment:
Quote:
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The Stochastic Oscillator always ranges between 0% and 100%. A reading of 0% shows that the security's close was the lowest price that the security has traded during the preceding x-time periods. A reading of 100% shows that the security's close was the highest price that the security has traded during the preceding x-time periods.
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Since I use slow stochastics, this puzzled me as I didn't find the 100% and 0% values as the quote suggests. In fact it applies to fast stochastics, and only occasionally occurs on slow stochastics.
Attached is a chart example that should make this point immediately clear. Upper stoch is fast, lower stoch is slow.
Take care!