STOCHASTICS – One of The Most Important Technical Indicator

1. Stochastics is an oscillator was developed by “George Lane”.
2. It is made up of 2 line.
3. Percent k is a solid line which also known as stochstics line and 
4. %D is a dotted line which is also known as signal line.
5. Relative position of this 2 lines deliver “buy/sell” signals as the case may be
6. Stochastics is plotted on a vertical scale where 20 is lower level and 80 is upper reference level.
7. Below 20 said as oversold zone
8. Above 80 said as over bought territory
9. Where both the line comes out from below 20 generates bullish signal
10. Where both the line falls below 80 generates bearish signal.
11. In a perfect bullish momentum K% will be greater than %D
12. When both the line continue to rise up trend
13. In a perfect bearish momentum % will be
14. Method of calculations(manually it is not possible):

% of k = (CTOD – LN *100) / HN – LN

% D = 3 days exponential moving avg.of %k

C to D = closing price of today

LN = Lowest price for the N = 5 days

HN = Highest price for the N = 5 days.

Stochastic fast plots the location of the current price in relation to the range of a certain number of prior bars (dependent upon user – input,usually 14-periods).In general,stochastics are used to

Measure overbought and oversold conditions. Above 80 is generally considered overbought and below 20 is considered oversold.

the inputs to stochastic fast are as follows

.Fast %K: [(close – low) / (high – low)]*100

.Fast %D: simple moving average of fast K 

(usually 3 period moving average)

 

 STOCHASTIC SLOW

Stochastic slow is similar in calculation and interpretation to stochastic fast. the difference is listed below:

 

.Slow %K: Equal to fast %D (i.e.3 –period moving average of fast %K)

.Slow %D: A moving average (again, usually 3 – period) of slow %k

 

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