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Stochastic oscillator (% K and% D)

1) Introduction

The idea is:

In the development of an upward trend, closing prices tend to be near the top and when the trend is down, closing prices tend to be near the lows of the session.

These oscillators use two lines,% K and% D, the most important being the last, and that is what generates the signals to buy or sell.

Its operation is as follows:

What trying to determine through is stochastic as is the current closing price compared to the price range a given period .

2) Fast Stochastic% K line or

The% K line is the most sensitive of the two. Its formula is:

% K = 100 - [(Pc-Lc) / (Hc-Lc)]

where:

Pc

= Closing price of each session. Lc

= The smaller of the minimum of the last five days

Hc = the higher of the maximum of the last 5 days

In this way you get a line, and as in the other oscillators, data is deleted first row every day and adds another day into force .

A high result (if it exceeds line 70) would place the end near the top of the price range and a low result would place the minimum closing price range.

Just

So in other oscillators, moving averages applied to the oscillators themselves be used % D line to smooth the line% K using the following formula:

% D = 100 H3 / L3

Where

:

H3 is the sum of the last three Pc-Lc

L3 is the sum of the last three H5 - L5

3) Slow Stochastic

is a more isolated where the% K Slow Stochastic% D line is the fast stochastic and line% D Stochastic Slow is a three-day moving average of line% K Slow Stochastic.

The advantage of these stochastic signals is not buying or selling, but in the "differences" with respect to the price series . You compare the closing price on the price range for a given period.

When the% D line is above 70 and an increasingly "lower highs" while prices are "lowest ever higher, it produces what is called a " bearish divergence ".

When the% D line is below 30 and an increasingly "minimum higher, while prices are "lowest ever higher, it produces what is called a " bullish divergence ".

signals The purchase or sale may occur when the% line K crosses the% D line of .

These signals are only meaningful if they occur in the maximum or the minimum stochastic always crossed the line 70 (up) or 30 (down). The best results can be obtained at the weekly charts.