STOCHASTICS:.
Stochastic indicator (Stochastics - K% D)
The stochastic indicator coined by analyst George Lane which was based
the idea that during an upward trend values usually closed near
most recent range, indicating willingness to constantly break
upwards this price range. But when the upward trend approaching maturity level
and exhaustion, then prices removed permanently lower than the maximum of
recent range. The opposite seems to happen when prices are
downward trend. The stochastic indicator was initially very popular in international markets
futures contracts in the mid-80s and later passed the use of
stock market with great success.
This indicator can be a valuable tool for identifying
imminent tops and bottoms, thus helping the timing of purchases and sales
near the reversal points. Placing a feedback current value within a
recent range. It consists of two sub-indicators the% D and% K.
% D ratio is the most important as it provides the signals of buying and selling
stochastic indicator. The formula for% K is:
% K = ((C - L5) / (H5 - L5)) 100
where, C is the closing price, L5 is the lowest intraday price of the last five
days and H5 is the highest intraday price of the last five days.
% K ratio oscillates between 0 and 100 and is
Overbought when found more than 70 and when Oversold falls below
30. I.e. if the value moved close to the upper limit of the recent price range, then the% K
will take values greater than 70. If the price tends to approach the minimum
recent price range, then the% K will take values less than 30.
The indicator% D is slower than the% K and oscillates between this
100 and zero with the same overbought and Oversold ranges. The% D
is a smoothed version of% K. The formula for calculating the% D is the following:
% D = (H3 / L3) 100
where H3 is the sum of (C - L5) for the past 3 days, and L3 is the
the sum of (H3 - L3) for the past 3 days.
The reflective index consists of a block into which the
% K and% D together. The% D shown as a dotted curve, whereas the% K as a
continuous curve. Also in the diagram mounted two horizontal lines, one at 70
and a 30 to indicate overbought and yperipolimeni region
the stochastic indicator. Between lines 70 and 30 there is a neutral zone
stochastic indicator.
There are several ways of interpreting the stochastic indicator.
buy when the index (the "S%" or "% D") falls below a certain level (20
for example), and after exceeding this level. We sell when the indicator
exceeds a certain level (eg 80) and then falls from this level.
We buy when the line "% K" surpasses line "% D" and sell when
vice versa.
looking for discrepancies. For example, when the stock makes a new record and
Stochastic indicator does not exceed previous heights.
The diagram below points A, B, C, D, E, F, G represent points
buying and selling according to the interpretations of A and B given above. According to
the interpretation of b in A, C, E, H must sell, while in B, D, F must
buy. In B and C not only our actions are consistent with the criteria
b interpretation, but this interpretation A.
It is obvious that the Stochastic indicator is constantly creating points of purchase or sale and is not the ideal indicator for investors
with long-term goals.
days and H5 is the highest intraday price of the last five days.
% K ratio oscillates between 0 and 100 and is
Overbought when found more than 70 and when Oversold falls below
30. I.e. if the value moved close to the upper limit of the recent price range, then the% K
will take values greater than 70. If the price tends to approach the minimum
recent price range, then the% K will take values less than 30.
The indicator% D is slower than the% K and oscillates between this
100 and zero with the same overbought and Oversold ranges. The% D
is a smoothed version of% K. The formula for calculating the% D is the following:
% D = (H3 / L3) 100
where H3 is the sum of (C - L5) for the past 3 days, and L3 is the
the sum of (H3 - L3) for the past 3 days.
The reflective index consists of a block into which the
% K and% D together. The% D shown as a dotted curve, whereas the% K as a
continuous curve. Also in the diagram mounted two horizontal lines, one at 70
and a 30 to indicate overbought and yperipolimeni region
the stochastic indicator. Between lines 70 and 30 there is a neutral zone
stochastic indicator.
There are several ways of interpreting the stochastic indicator.
buy when the index (the "S%" or "% D") falls below a certain level (20
for example), and after exceeding this level. We sell when the indicator
exceeds a certain level (eg 80) and then falls from this level.
We buy when the line "% K" surpasses line "% D" and sell when
vice versa.
looking for discrepancies. For example, when the stock makes a new record and
Stochastic indicator does not exceed previous heights.
The diagram below points A, B, C, D, E, F, G represent points
buying and selling according to the interpretations of A and B given above. According to
the interpretation of b in A, C, E, H must sell, while in B, D, F must
buy. In B and C not only our actions are consistent with the criteria
b interpretation, but this interpretation A.
It is obvious that the Stochastic indicator is constantly creating points of purchase or sale and is not the ideal indicator for investors
with long-term goals.
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