Stochastic Oscillator (or Stoschastics) is one of the most widely used technical indicators. This oscillator anticipate retracements / reversals.
representation:
Light blue line (% K) and red dots (% D).
When they cross all the 80 2, c is that the next evolution of the award will soon decline (as overbought). In contrast, the cross bar 20 indicates a future increase (as oversold).
Crossings between the curves% K and% D are also sending signals to buy or sell.
calculation:
% K = Simple Moving Average (HIGH / LOW) the last 3 periods
% D = simple moving average of% K over the last 3 periods
HIGH - the highest price reaches;
LOW - the lowest being reached.
The Stochastic
The Stochastic - or Sto - is an indicator invented by George Lane.
It is calculated from the closing price in relation to the high and low points on a number of periods.
The Stochastic% K is called gross, knowing that it is an indicator evolving bounded between 0 and 100% level.
It adds a moving average called% D calculated by smoothing% K over a period of three periods: in this case we obtain the Fast stochastics consists of two lines.
A new iteration of this calculation gives the Slow Stochastic, for which the% D Slow Stochastic% K is the Fast stochastics, which then calculated the% D fast.
They will talk about the Stochastic% K and% D. the average
Setting the Sto ATD is as follows:
In ProRealTime, it is possible to accurately reproduce the values of the Sto from exponential averages 14/5/5 and parameterization according to the following code:
REM Determine the highest and lowest on p bars
plusHaut HIGHEST = [p] (HIGH)
LOWEST plusBas = [p] (LOW)
Built REM oscillator
oscillator = (CLOSE - plusBas) / (plusHaut - plusBas) * 100
In REM lines derived from stochastic
ligneK ExponentialAverage = [q] (oscillator)
ligneD ExponentialAverage = [r] (ligneK)
LigneK RETURN AS "% K" ligneD AS "% D"
Must of course create the parameters p, q and r with labels in the interface are respectively Nb bars, MM% K and% D MM and the default 14, 5 and 5, but an example Stochastic indicators available in PRT can make it highly portable.
The following graph compares the Sto Sto default and reprogrammed:
The MACD
The MACD or Moving Average Convergence Divergence (Moving Averages Convergence Divergence) is an indicator developed by Gerald Apple, an analyst and fund manager New Yorkers. It is built on the basis of three exponential moving averages and its representation takes the form of two lines, the MACD and its signal.
To construct the indicator, two exponential moving averages are calculated short and long. The difference between the average and the average long-short gives the MACD line.
Exponential moving average calculated from the MACD line gives the signal line.
Unlike Stochastic, MACD indicator is not bounded.
Setting the MACD atd used is as follows:
The code of the indicator, preset as an example in ProRealTime MACD is as follows:
REM This example calculates the MACD
MMrapide EXPONENTIALAVERAGE = [p] (CLOSE)
MMlente EXPONENTIALAVERAGE = [q] (CLOSE)
monMACD MMrapide = - MMlente
EXPONENTIALAVERAGE line = [r] (monMACD)
RETURN monMACD, Line
and wherein for the parameters p, q and r are respectively visible label in the interface MM slow, fast and MM signal line.
Overbought / oversold
A method commonly used by technical analysts to determine the levels of overbought and oversold indicators is to use the passage of indicators beyond predetermined levels, such as 25% and 75% in the case of Stochastics:
Atd in a completely different concept is applied. The indicator is said oversold% when K is greater than D or MACD% above its signal. Conversely, it is said overbought when% K is smaller than% D or below its MACD signal:
Crossings
When the Sto or MACD moves from one state to oversold overbought or conversely, the type of cross trained special significance.
The turning angle of K% or MACD and the presence of non-crossing after this reversal can classify crossings into four categories.
According to Cahen (GLB, p. 70), crosses of type 1 and 2 correspond to changes in trend
While crossing type 3 and 4 are related to corrective movements:
It is worth noting that if the crossings strong type 1 or 2 often accompanied by a change in trend, this can not be an absolute rule. Indeed, it is appropriate to incorporate these crosses in a dynamic global to validate, and it is common for high crosses are simply invalidated if the dynamic environment is not favorable.
Similarly, it is also common for small cross type 3 and 4 above powerful movements. Just take into consideration the recommendation addressed to beginners - as restrictive criterion of position following a T1 - to observe a non-cross at least one of the two indicators (MACD and Sto) of the major unit of time (GLB, p. 97).
Use
The Stochastic is bounded, it is more reactive than CDAD and its use is particularly involved when prices fluctuate between the Bollinger Bands. This is not very useful when volatility is modest because the ATD does not seek to exploit the moderate price variations within the Bolinger bands, but is on the contrary very effective in situations high volatility in the early signals sent by the Stochastic comparisons in those issued by the MACD:
Stochastic
The stochastic indicator is the most popular nowadays, however, it was designed in the '50s by George Lane. Its name can cause some amalgam, should not be confused with the so-called stochastic processes which are methods used in statistics to assess the probability of random phenomena. The apprehension of this indicator is needed to properly learn forex.
This indicator provides information on the relative position of being compared to the range described by the highest and lowest in a given period.
Before considering the theoretical part of this indicator, I suggest you take a quick glance at a chart provided Stochastic.
Example of a stochastic oscillator
As you can see it is indeed an oscillator ;) Indeed it is bounded by 0 and 100.
In addition, we note areas surachats and oversold. Here are respectively the area between 80 and 100 and that between 0 and 20.
The% K is the main stochastic curve is the blue line on the graph. The other curve is a simple moving average curve for signal, it is called the% D.
Formula of stochastic parameter K
The principle of stochastic repeats that describes most of the oscillators. That is to say that we consider that there is a balance at any time, and prices tend to be closer to the point when they get too far away. This is where comes the notion of overbought and oversold.
Now see in practice how to use this indicator.
As with all oscillators, it is interesting areas ranges, to go along with oversold and overbought short. As this example illustrates quite well, as soon as the stochastic brand in a local extremum, prices tend to track the previous movement.
Emphasize it again, this applies only area ranks or else in the direction of the trend, but it would be foolish to shorter gusts in the underlying trend upward.
% K crosses% D
Now let's see how this can serve% D. In reality, it is a moving average (usually set at 3 times) as signal curve. Its utility is to use the stochastic indicator as trend following. Since areas of overbought and oversold show little interest trend was filtered% K to show entry points specific trend. These points are determined by the intersection between the% K and% D. Henceforth the% K cup upward% D then there is buy signal and vice versa for a sell signal.
Here on this example identifies a clear downward trend on prices, therefore be preferred taking short positions. In this case when the% K cut down its signal curve we would interpret as a sell signal.
How to use the Forex Stochastic
In conclusion of this course, we will retain both ranks that trend, the stochastic carefully used will prove very effective. Simple interpretation, it combines in itself signals overbought (oversold or) and provide entry points in trend following.
Stochastic is an oscillator developed by George Lane bounded. The indicator varies between 0 and 100 and is primarily used to identify overbought or oversold markets.
It considers overbought when the index changes over 75 and oversold when operating below the threshold of 25. These thresholds are configurable. Indeed, some traders use thresholds of 80 and 20 to define their areas.
Its performance is optimal in the phase "range trading" and stakeholders in day trading.
Trend (trend following), the indicator is very useful. Indeed, it quickly announced an area of overbought or oversold when prices are at the beginning of a new trend which has just set up. We prefer the MACD with which it is often associated.
The work of the trader wishing to use the stochasique will determine if it is in range trading phase or trend in order to best use its indicator.
Representation
Stochastic comes from a fairly complex calculation. The indicator is finally represented by a line (black line), which is also called% K. He combines a 14 period moving average (red line) also called% D.
Close enough to the RSI, the Stochastic indicator is evolving bounded between 0 and 100. We say that the stochastic is oversold passes in line 25 (green) and overbought when it crosses the line 75 (red).
The interpretation
In the case of pure trading tool, it is recommended to buy when the stochastic falls below 25 and sell when it goes above 75. Some prefer to wait to see the stochastic back above 25 after the indicator has spent some time in this area.
This will prevent spurious signals by buying near the lowest and avoid being stuck with prices that have suddenly decided to leave the range trading to begin a downtrend.
Another use for a softer trading is to provide filters to increase his chances of capital gains. In the case of a strong bullish configuration defined by a moving average 20 and 50 upward, as soon as you buy the stochastic pass under 25, taking care that the MM50 is still bullish on the purchase, and the MM20 is not yet on the downside.
The stochastic indicator is timing, so do see there, transforming a purchase short-term purchase long-term trend playing although it is sometimes feasible as in our example below, but perform only one operation short-term benefit.
Finally, finally, we can also consider the bullish divergences or bearish. These are much shorter than those that can be seen on the MACD. That in our example above only lasts one month against sometimes 2 to 4 months for a divergence of MACD.
Stochastics are an oscillator developed by George Lane.
The Stochastic consists of two lines,% K and D:
K-line measurement as a percentage, which is the current closure in relation to the lowest observation period. It is shown on a scale of 0 to 100 ..
The% D line is a simple moving average of K. As this is a moving average, this line is smoother than K, it is used to give signals to buy and to sell.
Stochastics are the least used of the two types of stochastic because they react faster and they give more false signals.
The most common uses of Stochastics are:
- Identify markets purchased (overbought) or sold (oversold)
An overbought or oversold market is a market where prices have risen or fallen too far and should be corrected.
If the% D line is above 80%, this means that the underlying is near the end of a trend of the observation period, so an overbought market.
If the% D line is below 20%, this means that the underlying is near the end of a trend of the observation period, then sold in a market ..
Signals of purchase and sale of more reliable in non-trending market where prices are making a series of highs and lows
For example, if the trend is up, it is better to take a position on the rise, as prices come down, it will cause a signal to sell and market should then return.
- Generate signals to buy and to sell.
For signals of purchase and sale, the following conditions must be met in order
1. Lines K and% D are above 80 or below 20.
2. The K and% D lines cross.
3. Lines K and% D move below 80 or above 20.
- Indicate Bullish and Bearish Divergence.
When the market is in an uptrend or downtrend, stochastics can be used to indicate a weakening trend in signaling divergence. Divergence between Stochastics and the price indicates that the bullish or bearish weakens.
A bearish divergence occurs when prices reach a new high instrument while Stochastic lines fail to highs.
A bullish divergence occurs when prices reach a new low instrument while Stochastic lines fail to pass its lows.
It is important to note that although Divergences indicate a weakening trend, they do not indicate that the trend has changed. Confirmation or signal must come from the price action, such as breaking a trend line.
Parameters
K observation period (default 5)
The number of intervals in the period used to select the top and bottom. A higher value will result in a default% K line smoother and less noticeable.
Averaging period% D: (default 3)
The averaging period is the number of observations of the K line used in the moving average. The higher the value, the smaller the% D line will approach K.
All about the stochastic indicator
Let us look at the functioning of the stochastic indicator, and how to analyze the stochastic lines: crossing oversold / overbought differences.
Welcome to our article on the stochastic indicator (or stochastic oscillator).
The Stochastic Oscillator is an overbought and oversold indicator very popular. It was developed by George Lane in the early '60s. It compares the position of the closing prices over a range of prices based on a certain period, based on the following principle: when prices are high, closing price are close to the highest point of the reference period; and conversely, when prices fall, closing prices are near the lowest point of the reference period.
How does the Stochastic Indicator?
Stochastic is a momentum indicator, oscillator bounded between 0 and 100 and consists of two stochastic lines.
% K: is the main line, representing the fast stochastic. It is represented as a continuous line on the graph
% D is the line representing the Slow Stochastic. It is represented as a dotted line on the graph.
As you can discover on the image below five parameters affect the stochastic oscillator:
'% K Period': represents the number of periods used to calculate the stochastic indicator.
'% K Slowing Period': represents the smoothing factor stochastic line% K.
'% D Period': indicates the number of periods used to calculate the moving average of% K, which creates the stochastic% D line
'Price field': indicates the type of price used for the moving average of% K, which can be high / low.
'MA Method': is the method of calculating the moving average of the% K stochastic line, which can be exponential, weighted, smoothed or simple.
What are the 3 ways to analyze the stochastic lines?
1. Crossing (crossover): We can consider the lines% K and% D as two indicators moving average. One of them is faster and the other slower, they sometimes overlap. It is advisable to buy when the% K stochastic cut upward its signal line% D, and conversely, it is advisable to sell when the% K stochastic line cut down its signal line% D . It is nevertheless useful to confirm this through other indicators.
2. Oversold / Overbought: When the stochastic lines pass below the line 20 or above line 80, it says that the stochastic is oversold and overbought respectively. It is good to buy when the stochastic after descending below the line 20 back to cut the other way. And it is good to sell when the stochastic after climbing above line 80, back down to cut the other way.
3. Differences: The differences between the stochastic lines and online courses can be a warning about a possible change of orientation courses, and thus an indication of sale or purchase. For example, if the purchase price peaks reach consecutively while the stochastic trend to decrease, it can be interpreted as a sign of market weakness.
We hope that this article has given you a better understanding of what a stochastic oscillator and its operation, and your new knowledge in analysis of stochastic lines may be helpful in your transactions. Do not hesitate to consult other articles on our website.
The Stochastic RSI, Stoch RSI or also called, was developed by Tushard Chande and Stanley Kroll.
This is an oscillator which, as its name indicates, applies the method of calculation of the indicator classical Stochastics RSI values. This is an "indicator indicator."
While classical Stochastics indicator measures the relationship between the closing price and daily variations, the Stochastic RSI measures the RSI relative to its variation over.
This indicator ranges from 0 to 1.
Calculation method
It is calculated as follows:
Stoch RSI = (RSI - MinimumRSIn) / (MaximumRSIn - MinimumRSIn)
where:
= The value of RSI RSI period n
MinimumRSIn = minimum value of the RSI period n
MaximumRSIn = the maximum value of the RSI period n
Example
Interpretation
The Stochastic RSI can be interpreted in several ways:
Signal on the purchase or sale of: Stochastic RSI when is above 0.80, then the value is considered purchased and on downward correction could occur in the near future.
Conversely, when the Stochastic RSI is below 0.20, then the value is considered sold out and upward correction could take place in the near future.
Some argue that the upward crossing of the 0.20 level is a buy signal, and the crossing of the lower level 0.80 is a sell signal.
Signal crossing at the central level: Some consider the level crossing 0.50 confirms another signal.
Others believe that the upward crossing of the level position after 0.50 on sale as a buy signal, or vice versa crossing to the lower level after 0.50 on the purchase of a situation as a sell signal.
Divergence signal: If the Stochastic RSI is rising and crosses the 0.20 level while the closing is down, then this divergence can be interpreted as a buy signal.
Conversely, if the Stochastic RSI is decreasing and crosses the 0.80 level while the closing price is rising, this divergence can be interpreted as a sell signal.
The stochastic indicator was developed by George Lane in the 50s. This indicator is one of the most popular.
The stochastic term can be misleading. Indeed, the name "stochastic" is used in the statistics for the study of random phenomena.
Stochastics is a momentum indicator that assesses the position of the fence at time t from the range (difference) higher / lower over time. Courses fences near the top of the reference period generally indicate accumulation (buying pressure). Conversely, during the fencing near the lowest period generally indicate distribution (selling pressure).
This indicator consists of two curves exists in two versions:
A fast stochastic calculated from two elements denoted% K and% D
A slow stochastic calculated from two elements denoted% and% DS DSS
Formula explanation:
The fast stochastic is constructed from two components:
The% K which is the ratio between the range [current closure; lowest over the period] and range [highest over the period of lowest period] percentage.
The reference period is generally 14 candles.
% D which corresponds to a simple moving average of% K. It is in fact smooth movements% K. The calculation of the moving average requires a parameter, a period. Generally used the period of 3 candles.
The slow stochastic is composed of two elements:
DS% which corresponds to an arithmetic moving average of% D for a given period. Smoothing is usually of 3 candles.
% DSS also corresponds to an MMS% DS (period 3 candles also generally).
Psychology:
Stochastic: Application to the trading and investment:
The traditional use of stochastic indicates a bullish signal as the% D line cut upwards line% DDS for the slow stochastic (% K and% respectively for the fast stochastic D). This practice leads to many false signals.
All crossings do not have the same "value". Crossings involved in areas of overbought and oversold
are most relevant.
The stochastic indicator is limited and so it is fairly easy to determine overbought levels (level indicator above 80) and oversold (lower level of the indicator 20). Usually the signal is bullish when the oscillator leaves the oversold zone. The signal is bearish when the oscillator leaves the overbought zone.
Differences can also be quite relevant signals. A bearish divergence (resp. upward) when prices mark a new high (low) but the indicator does not succeed. A page devoted to the differences is available here.
Differences is a better quality when it occurs in the area of overbought or oversold.
This indicator is a good indicator of timing. It is particularly effective in times of trading range (less efficient in a market trend). In a market trend indicator tends to saturate (remain in overbought zone or oversold). It tells us that while the current trend is strong.
Attention! Like all the stochastic indicators can not of itself justify an order to buy or sell. These are courses that are indicators and not the reverse. And a bearish signal or stochastics bullish must be confirmed by the courts (breaking strength support) to place an order.
The Stochastic ("the" and not "the" because it is an indicator) is also an indicator bounded between 0 and 100. RSI as it determines the periods of overbought or oversold title. This indicator with the moving average is widely used in rooms marché.Il was invented by George Lane and is calculated as follows:
For a period of n days:
With C during the day, B (n) the lowest price on day n, and H (n) the highest price n days.
Unlike the RSI, Stochastic does not use average but a higher and a lower making it extremely volatile. For the filter is sometimes used its moving average, it then carries the name of% D. Stochastic as calculated here also bears the name of% K. Stochastic is usually calculated on 14 days.
Stochastic is used preferably in a non-oriented. Indeed, in a bull market, the stochastic approaches 100, and conversely in a bear market, it tends to 0.
We'll see on the next page how we define thresholds purchase and sales thresholds for this indicator.
Stochastic Momentum Index: an interesting variation of classical Stochastic
The Stochastic Momentum Index (SMI) was developed by William Blau. It is a particularly interesting variant of the classical stochastic indicators. It calculates a value reflecting the difference between the fence and the spread between the lowest and the highest price for a period of x.
However SMI calculates the value reflecting the difference between the last fence and over the average of the lowest and the highest price for a period of x.
This results in an oscillator with a value between -100 and 100, the curve seems much smoother than the classical stochastic indicator.
How to interpret the indicator?
If the price of fence is higher than the average gap, the SMI is positive. Buyers dominate the market.
However, if the price of fence is below the average of the difference, the SMI is negative. It is then the sellers dominate the market.
When the SMI falls below a defined level (eg -70 = oversold market is) and then beyond, you can buy.
In contrast, when the SMI rises above a certain defined level (eg 70 = the market is overbought) and then falls below that level, you can sell.
