How to use Stochastics

mattboffey

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Hi there fellow traders

When reading this forum alot of people recommend using stochastics (correctly)

I would be grateful if someone could elaborate on how to use it correctly

Matt
 
Honestly, I think the best way to use them is to take them off your chart.

Some people might find them useful, but I think it likely that for the majority they will be a distraction at best.

I certainly never found any use for indicators, and the point at which I ditched them was the point where I really began to learn.

Obviously others might disagree, and good luck to them if they do. But I think they are far more likely to hinder you than help you.
 
yep, same here, once I learned a bit about price action I pretty much stopped using indicators. Quick video about stochastics over here:

 
I think that most indicators lag if you don't know how to read them. I do use technical indicators with much success. In my opinion the RSI is the best because it does not lag if you know how to read it. The foremost authority on the RSI is Andrew Cardwell.

Good Trading,
JahDave
 
Honestly, I think the best way to use them is to take them off your chart.

Some people might find them useful, but I think it likely that for the majority they will be a distraction at best.

I certainly never found any use for indicators, and the point at which I ditched them was the point where I really began to learn.

Obviously others might disagree, and good luck to them if they do. But I think they are far more likely to hinder you than help you.


agree with paz

i have a MACD and an EMA on my charts but increasingly i find myself ignoring them (entering positions based off S/R and trendlines without looking to macd for confirmation)

the hardest thing about indicators and oscillators is choosing the right parameters
 
agree with paz

i have a MACD and an EMA on my charts but increasingly i find myself ignoring them (entering positions based off S/R and trendlines without looking to macd for confirmation)

the hardest thing about indicators and oscillators is choosing the right parameters

That comes with experience and there are a lot of clues that they provide that are not obvious unless you really understand them very well. I say that whatever you use that works well for you is great, but for me technical indicators and chart patterns work extremely well. Although it took me a lot of study time to get them to work well.......

Good trading,
JahDave
 
I was never able to make anything out of stochastics. Speaking for myself of course.
 
I was never able to make anything out of stochastics. Speaking for myself of course.

That would be because you never studied it completely............It is not my favorite indicator, but it is very good if you understand it...................
 
Hi there fellow traders

When reading this forum alot of people recommend using stochastics (correctly)

I would be grateful if someone could elaborate on how to use it correctly

Matt

I agree, take them off your chart. Even better, take all the TA from your chart. "Learning how to read technical indicators"...:sleep: Sorry.

Read the attachment, I think it will shine some light in the TA darkness.

Shaka :cool:,

Frits
 

Attachments

  • What about Technical Analysis.pdf
    53.6 KB · Views: 401
Thank you for all the feedback

I have just started to read the definitive guide to point and figure

Matt
 
Hi

Thanks for the recommendation of Andrew Cardwell course for RSI.

I am looking for similar training material for Stochastics. Is there any good book or course, where
Stochastics are covered in more detail.

I have seen quite a few videos on youtube + read up material by Murphy,Kirkpatrick and Pring.

thanks
 
Hi there fellow traders

When reading this forum alot of people recommend using stochastics (correctly)

I would be grateful if someone could elaborate on how to use it correctly

Matt

The theory behind the Stochastic Oscillator is based on the simple observation that as price increases in uptrending markets, closing prices tend to be closer to the upper end of the price range. In downward price movements, the closing price of the given security tends to be near the lower end of the range.

With that said, the Stochastic Oscillator is made up of two lines oscillating in the range from 0 to 100. The*%K*is the main line, and the function of its curve plots the ratio of differences between the current closing price and the lowest price within the specified "look back" period.

The second function plotted is the*%D*curve and it is simply the moving average of*%K*over a chosen period.

In essence, as a trader employing the Stochastic indicator, your job is to Locate the Buyers & Sellers & award the given trade analysis technical 'points' for the Stochastics “Crossover” at extreme levels of buyer or seller "Price Sentiment". The deeper the “Crossover” into Over Sold/Bought Territory, the better. The idea being that once the closing prices start closing near the extreme ranges calculated by the %D & %K functions, the market is due for a corrective action back to a theoretical level of price "Equilibrium".

The mental trading syntax I use during a trading session to objectify the process required to generate a 'Quantitative Technical Score' for any given trade would be as follows:

IF price reaches an extreme level of momentum and Over Sold/Bought Conditions before Crossing Over to indicate a change in the directional sentiment of the participants, THEN, I will award the Stochastic Crossover points needed to execute a trade in the direction Predicted by the Charts at that moment in time.*

As you can see however, this statement now opens you up to a whole other series of questions like:*

-Can I make a trade decision based off of a Stochastic Strategy alone?

-What percentage of the time does a Stochastic Crossover strategy actually produce winning results?

-How much Risk exposure must I be willing to accept when trading a Stochastic Crossover Strategy in order to feasibly turn a consistent profit?

None of these question can be easily answered in one single post. But what I can tell you is that the answer lies in Quantative Analysis, Probabilities, & Statistics.*

The path I personally took to find these answers led me to the development of a major spreadsheet, & tool that I use to mathematically define every component of my Trading Business. You see, I do not just quantify Stochastics. I study the entire Probability set for about 10 different technical indicators based on price action alone, that i have found could consistently turn a profit.*

I dont make a decision to enter a market when Stochastics alone signals an entry; I Execute a decision to Enter a market when a combined series of indicators signal an entry, and only when the probabilities & risk profiles that are automatically and mathematically calculated by my spreadsheet tell me that its "money making" time... you feel me?

anyways,verbalizing this information helps me tremendously because what i have learned is that when i can clearly explain what i am doing to others, it helps cement the knowledge & internalize the foundation of the information on a fundamentally deeper level. So what does that mean for you?

It means that if you want a copy of my spreadsheet, then all you have to do is go to my website at Take Your Profits | TradeSocial: The Online Trading Business Network for Traders and fill in your email address in the indicated submission box & you will be granted access to download the file for your own personal use... FREE of charge. I seriously give it away free of charge. You'll see the button on the right hand side of the page, it says Free Spreadsheet.
For Traders: Forex Trading Systems – Stock Software & Free Spreadsheet
There is also a social network you can be a part of, and I invite you to join and share your experiences in grasping the knowledge and developing your skills as a trader using the technical indicators we are discussing.
Ill leave you with this, i trade the stochastic oscillator profitably, but I do not base my trading decisions off of the stochastic oscillator by itself & I do not suggest that you do either.

Just to give you an idea, the way I have used the Stochastic Oscillator this year, It has produced a 41.51% Winning Percentage which contributed to an 18% increase in my equity curve... but only because my trading psychology was centered on cutting the losers shorter and holding the winners longer.*

as you can see, this can become a long winded event, and a topic which will provide for a plethora of postings!!! i hope i did not bore you.

Good Luck!!! I really hope my answer helped you. http://www.takeyourprofits.com/login
 
Hi there fellow traders

When reading this forum alot of people recommend using stochastics (correctly)

I would be grateful if someone could elaborate on how to use it correctly

Matt

most indicators lag............but they have uses in confirming and measuring what has happened

use them as a secondary line of confirmation to price action


N
 
The theory behind the Stochastic Oscillator is based on the simple observation that as price increases in uptrending markets, closing prices tend to be closer to the upper end of the price range. In downward price movements, the closing price of the given security tends to be near the lower end of the range.

With that said, the Stochastic Oscillator is made up of two lines oscillating in the range from 0 to 100. The*%K*is the main line, and the function of its curve plots the ratio of differences between the current closing price and the lowest price within the specified "look back" period.

The second function plotted is the*%D*curve and it is simply the moving average of*%K*over a chosen period.

In essence, as a trader employing the Stochastic indicator, your job is to Locate the Buyers & Sellers & award the given trade analysis technical 'points' for the Stochastics “Crossover” at extreme levels of buyer or seller "Price Sentiment". The deeper the “Crossover” into Over Sold/Bought Territory, the better. The idea being that once the closing prices start closing near the extreme ranges calculated by the %D & %K functions, the market is due for a corrective action back to a theoretical level of price "Equilibrium".

The mental trading syntax I use during a trading session to objectify the process required to generate a 'Quantitative Technical Score' for any given trade would be as follows:

IF price reaches an extreme level of momentum and Over Sold/Bought Conditions before Crossing Over to indicate a change in the directional sentiment of the participants, THEN, I will award the Stochastic Crossover points needed to execute a trade in the direction Predicted by the Charts at that moment in time.*

As you can see however, this statement now opens you up to a whole other series of questions like:*

-Can I make a trade decision based off of a Stochastic Strategy alone?

-What percentage of the time does a Stochastic Crossover strategy actually produce winning results?

-How much Risk exposure must I be willing to accept when trading a Stochastic Crossover Strategy in order to feasibly turn a consistent profit?

None of these question can be easily answered in one single post. But what I can tell you is that the answer lies in Quantative Analysis, Probabilities, & Statistics.*

The path I personally took to find these answers led me to the development of a major spreadsheet, & tool that I use to mathematically define every component of my Trading Business. You see, I do not just quantify Stochastics. I study the entire Probability set for about 10 different technical indicators based on price action alone, that i have found could consistently turn a profit.*

I dont make a decision to enter a market when Stochastics alone signals an entry; I Execute a decision to Enter a market when a combined series of indicators signal an entry, and only when the probabilities & risk profiles that are automatically and mathematically calculated by my spreadsheet tell me that its "money making" time... you feel me?

anyways,verbalizing this information helps me tremendously because what i have learned is that when i can clearly explain what i am doing to others, it helps cement the knowledge & internalize the foundation of the information on a fundamentally deeper level. So what does that mean for you?

It means that if you want a copy of my spreadsheet, then all you have to do is go to my website at Take Your Profits | TradeSocial: The Online Trading Business Network for Traders and fill in your email address in the indicated submission box & you will be granted access to download the file for your own personal use... FREE of charge. I seriously give it away free of charge. You'll see the button on the right hand side of the page, it says Free Spreadsheet.
For Traders: Forex Trading Systems – Stock Software & Free Spreadsheet
There is also a social network you can be a part of, and I invite you to join and share your experiences in grasping the knowledge and developing your skills as a trader using the technical indicators we are discussing.
Ill leave you with this, i trade the stochastic oscillator profitably, but I do not base my trading decisions off of the stochastic oscillator by itself & I do not suggest that you do either.

Just to give you an idea, the way I have used the Stochastic Oscillator this year, It has produced a 41.51% Winning Percentage which contributed to an 18% increase in my equity curve... but only because my trading psychology was centered on cutting the losers shorter and holding the winners longer.*

as you can see, this can become a long winded event, and a topic which will provide for a plethora of postings!!! i hope i did not bore you.

Good Luck!!! I really hope my answer helped you. Log In

Or you could just take a punt off a price bar (use indis if you want, I've been playing with a few recently...it's fun, especially when you can see right through the bu11sh1t some are pushing and ask pertinent questions they don't want to answer on forums :LOL:), see which way price goes and add if everything stays intact.

It takes one order coming into the market to screw up all your carefully tested and defined 'probabilities'...are there any probabilities in trading?? Stats yes, but as to how useful they can be is another issue. And don't some gurus bend the truth with those too..20 pips from the daily low...but where IS the daily low...but sooner or later it WILL be the daily low and statistically price moves 20 pips or more from it....right but I've just lost 80 pips going long in a downward market trying to find the low, found it then won 10 pips today FTW :LOL:)

From how you describe your edge this year it has little to do with Stoch and all to do with trade management, i.e. when the market trends after entry you make money, when it doesn't, you don't. How many TFs are you observing, because with Stochs that can get hellavua confusing: Hourly says we're overbought, go long, but daily says Oversold, go short, but 15 minute says trending etc. Stochs are just making you trade less (a good thing) and then giving you an excuse to pull the trigger. It's what you're doing after pulling the trigger that's making you money and would be the most useful things to show folks, not stuff about Stochs.
 
Not only have I never found any use for stochastics, but I can't think of another trader on my trading floor who uses them. Stochastics, like all indicators pretty much, are just derivatives of pure price action. Once you learn how to read price action, you'll have no need for indicators and won't need to rely on them as a crutch.
 
inside stochastic

if close - lowest increases, stochastic increases
if close - lowest decreases, stochastic decreases.
if highest - lowest increase, stochastic increases.
if highest - lowest decreases, stochastic decreases.
 

Attachments

  • stoch 100 inside.pdf
    5.2 KB · Views: 192
Honestly, I think the best way to use them is to take them off your chart.

This totally made me laugh!! Good way to start the trading session!! :cheesy::cheesy:

I actually do use Stochastics in both manual and automated trading, but anyways that was a really good joke!
 
This totally made me laugh!! Good way to start the trading session!! :cheesy::cheesy:

I actually do use Stochastics in both manual and automated trading, but anyways that was a really good joke!

I kind of agree with him. They are good as an additional but shouldn't be taken as a go-to.
 
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