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Futures Charts
- Technical Analysis Help
Stochastic - Slow Indicator
Description:
The Stochastic Slow indicator is an oscillator which
indicates overbought and oversold conditions in the
market. It is based on the premise that during periods of
price decreases, bar closes tend to accumulate near the
low of the bar. During periods of price increases, bar
closes tend to accumulate near the high of the bar.
Conventional Analysis:
A signal is generated when any plot lines cross.
Additional Analysis:
Some traders prefer the slow stochastic, which is smoothed
by means of a moving average technique, instead of the
fast stochastic, which is not smoothed. The fast
stochastic, as the slow stochastic, generates two lines:
%K and %D.
The area above 75 or 80 is usually said to be
overbought, while the area below 20 is usually said to be
oversold. The developer, Dr. Lane, believes the most
important signal is a divergence between %D and the
commodity; that is, the condition when %D makes a series
of lower highs while the commodity makes a series of
higher highs. This signals an overbought market. An
oversold market occurs when the commodity posts a series
of lower lows while %D makes a series of higher lows.
When either of these patterns occur, you should anticipate
a signal. You can initiate a position when the %K crosses
the %D from the right-hand side (when the %D has either
bottomed or topped and is moving higher or lower when the
%K crosses the %D line). Dr. Lane believes that the most
reliable trades occur when the %D is between 10 and 15 for
a buy, and between 85 and 90 for a sell.
Additional References:
Lane, Dr. George C. "Lane's Stochastics," Technical
Analysis of Stocks and Commodities magazine. May/June,
1984.
Technical Analysis Studies Available to you
are:
You can adjust parameters of each indicator
to suit you.
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