Talk:Stochastic oscillator

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[edit] Corrections

The numerator of the formula given on the 'article' page is incorrect. The numerator should be (closing price - pricelow). I think a better description of the Stochastic Oscillator is as described below:-

A technical momentum indicator that compares a security's closing price to its price range over a given period. The usual (or default period) is 14 days.

The formula for the Stochastic (%K) is:-

%K = 100 (C - L14) / (H14 - L14)

where: C = todays close H14 = the highest closing price over the 14 previous trading sessions L14 = the lowest closing price over the 14 previous trading sessions

%K therefore represents in percentage terms how far up from the low of the price range of the period in question, is the current closing price.

The theory behind the stochastic indicator is that during an uptrend prices tend to close near their 14 day high, and that in a downtrend prices tend to close near their 14 day low.

The %K value calculated by the above formula is strictly speaking a 'Fast Stochastic'. A signal line (%D) is calculated by taking a 3 period exponential moving average of the %K line. Buy signals are given when %K moves up through the %D line. Sell signals are given when %K moves down through the %D line.

Because the 'Fast Stochastic' is fairly volatile and prone to whipsaws, a Slow Stochastic is commonly used for trading. This is less volatile and less prone to giving false signals. The 'Slow Stochastic' is simply calculated as follows :-

Slow Stochastic %K = the Fast Stochastic signal line (ie, the Fast Stochastic %D) Slow Stochastic %D = 3 period exponential moving average of 'Slow Stochastic %K'

—The preceding unsigned comment was added by 86.139.133.26 (talk • contribs) 01:44, 10 February 2006.

[edit] Merger

I stuck tags to merge "Lane's stochastics" into here. I'm actually thinking of a title "Stochastics (technical analysis)" for the merged whole too. Although Lane is mentioned with the concept, I've not usually seen his name in the name of the osciallator. Rumour has it he may not have actually been the creator of the concept, so a neutral title could be best anyway. -- Kevin Ryde 00:47, 11 February 2006 (UTC)