Stochastic - page 5

[Sergey Golubev]

Forum

Something Interesting in Financial Video July 2013

newdigital, 2013.07.10 08:35

24. The Difference Between the Fast, Slow and Full Stochastic

Answer to a question on what is the difference between the fast stochastic, slow stochastic and full stochastic

[Sergey Golubev]

This is some information about how to use/trade Stochastics indicator

Trading with Stochastics :

Stochastics gives its strongest sell signal when the two moving averages that comprise it have first been above 80 and then close below the 80 level. The strongest buying signal is given when the two moving averages have first been below 20 and then close above 20.

Ideally, we should use Stochastics, and any other indicator for that matter, only to take trades in the direction of the Daliy trend. So if a trader determines that a pair is in an uptrend, they would then consult Stochastics to time their entry after Stochastics has been below 20 and then closed above the 20 level. In a downtrend, such as we have on the Daily chart of the USDCHF below, they would look for Stochastics to have been above 80 and then close below it for the signal to sell the pair.

See the chart below for an example of this :

For Stochastics to close below 80 in a downtrend or above 20 in an uptrend is a much stronger signal than if Stochastics simply goes above or below those levels during the course of the time that the candle is open.

For example, let's say that a trader is using a 1 hour chart. When that 1 hour candle closes at the end of the hour, the trader can check Stochastics to see if the two moving averages were above 20 or below 80 after the close occurred. That will confirm that the indicator did indeed close above or below the requisite level.

[Sergey Golubev]

Slow Stochastics versus Fast Stochastics :

Developed by George C. Lane in the late 1950s, the Stochastic Oscillator is a momentum indicator that shows the location of the current close relative to the high/low range over a certain number of periods.

New traders typically want to know the difference between Fast Stochastics and Slow Stochastics. They also want to know whether the typical default settings of 5,5 (Fast Stochastics) or 5,5,5 (Slow Stochastics) as seen in most charting packages developed for FX are better or worse than the typical default settings of 14,3 (Fast Stochastics) or 14,3,3 (Slow Stochastics) seen in stock and futures charting packages.

First of all, the difference between Fast Stochastics and Slow Stochastics is just a moving average.

When calculating Fast Stochastics using the values of 5 and 5, the first “5” is the raw value for Stochastics, while the second “5” is a 5-period moving average of the first “5”. When using Slow Stochastics, the first two 5’s are the same as with the Fast Stochastics, with the third “5” being a moving average of the second “5”. Yes, that’s right, a moving average of the moving average. This slows the movement of the indicator down even further, hence the name of Slow Stochastics.

By slowing the movement of the indicator down, we will see fewer signals to buy or sell on the chart, but they should be more reliable signals. By using a larger value in calculating the raw value of Stochastics, we slow the indicator down even more. This is why I recommend to traders using FX charts to use the Slow Stochastics with values of 15,5,5. This combination offers fairly reliable signals that can offer solid entries into trading opportunities. The chart below shows the difference between Fast Stochastics with values of 5,5 compared to Slow Stochastics with values of 15,5,5.

You can see how much easier it is to identify the signals using the Slow Stochastics. Being able to use the technical tool effectively is most of the battle. By keeping things simple and consistent, we should start to see consistent results in our trading.

As with all indicators, entering a trade only when the indicator generates an entry that is in the direction of the trend can result in a higher probability of success.

[king1898]

Hi newdigital,

i have tough question about the %k or %d value is not incorrect or disaccord with picture when i use stochastic indicator in my ea. i just use it as below,

int OnInit()
  {
//--- Get handle for KD indicator
   KDHandle=iStochastic(NULL,0,K_Period,D_Period,3,MODE_SMA,STO_LOWHIGH);
//--- Get the handle for Moving Average indicator
//   maHandle=iMA(_Symbol,_Period,MA_Period,0,MODE_EMA,PRICE_CLOSE);
//--- What if handle returns Invalid Handle
   if(KDHandle<0)
     {
      Alert("Error Creating Handles for indicators - error: ",GetLastError(),"!!");
      return(-1);
     }
...
void OnTick()
  {
//--- Do we have enough bars to work with
   if(Bars(_Symbol,_Period)<60) // if total bars is less than 60 bars
     {
      Alert("We have less than 60 bars, EA will now exit!!");
      return;
     }  

// the KD Kvalues array
   ArraySetAsSeries(K,true);
// the KD Dvalues array
   ArraySetAsSeries(D,true);

   if(CopyBuffer(KDHandle,0,0,2,K)<0 || CopyBuffer(KDHandle,1,0,2,D)<0)
     {
      Alert("Error copying Stochastic KD indicator Buffers - error:",GetLastError(),"!!");
      ResetLastError();
      return;
     }

   bool Buy_Condition_1 = (K[0]>=D[0] && K[1]<=D[1]); // k>=D and K1<=D1
   bool Buy_Condition_2 = (K[1]<=20 && D[0]<=20); // k1<=20 and d<=20
-....

like above, sometimes it works well but sometime it is bad when they should be sent buy or sell signal.

Can you help me?  How should i do? Thanks for your help in advance!

[Alain Verleyen]

king1898:

 ...

Can you help me?  How should i do? Thanks for your help in advance!

Please edit your post and use the SRC button when you post code, thanks.

[king1898]

K or D may be changed when a new tick, but we bars of 1 minute, generate the signature, ticks, minute, may cause some deviation?

Are two ticks may be the time between one minute is too small, so we can not just capture the moment of the cross to K / D

[Alain Verleyen]

king1898:
May be k or d is changed when new tick happens, but we use 1 minute bar to produce signa, tick and minute will lead some deviation??

How are you K and D arrays declared ? From the code I see K[0] and D[0] are the values of last closed candles and K[1] and D[1] the values of current (open) candle. You probably have to use ArraySetAsSeries() to inverse the index.

Values of current/open candle are always changing.

[king1898]

in this picture, two arrows should produce two signals but my ea can't send, why? 

[king1898]

angevoyageur:

How are you K and D arrays declared ? From the code I see K[0] and D[0] are the values of last closed candles and K[1] and D[1] the values of current (open) candle. You probably have to use ArraySetAsSeries() to inverse the index.

Values of current/open candle are always changing.

k[0] is the current candle and k[1] the last candles, did i make a mistake?

[Alain Verleyen]

king1898:
k[0] is the current candle and k[1] the last candles, did i make a mistake?

Not. Seems correct.