question about stochastics...

Hi, was wondering if anyone had an improvement over general method of trading 5,3,3 stochastics? I lost more money than I cared to this week in the Euro's downturn, trading the 5 minute timeframe. At first I thought it was just me, till I realized that over-bought and over-sold have absolutely nothing to do with price or direction. Often an overbought situation just keeps screaming upward, and cross-overs mean next to nothing because the indicator lines still only follow price and can switch direction in a second. I'll admit my strategy is very short time frame, but even by following the signals when to enter and exit can still put a person at high tide or no ocean in sight, very quickly. And even volume is no help when a person is going the wrong direction. The market seems very counter-intuitive, violates every rule and strategy, consistently for a very long time. Am curious if there's any way to improve on stochastics, since so many trend following systems seem to use it. Can anyone suggest a more predictive oscillator? Edited October 15, 2010 by germeten

I am no expert trader, and I am still learning everyday. But my personal take on most oscillators (stoch, macd, rsi, etc.) is that they are very good for relatively flat or ranging market, as well as for gentle sloping market, but not so good for very strong trending moves or market.

 

So I tend to use them more for reading divergence, or for reading trend-line break (I mean trend-lines that I can draw on the oscillator's peaks or valleys), and less use for overbought/oversold indication.

 

If I have to use the overbought/oversold area of an oscillator, I use it more for STOPPING me entering a trade (e.g. if it is in overbought territory, I will not enter a buy trade easily), and not so much for signaling me to enter a trade (e.g. if it is in the overbought territory, this is not reason enough for me to enter a short trade, unless I have other reasons to do so, like trend line break, psychological number break, etc.)

 

Just my two cents.

free e-book on stochastics

 

http://vladimirribakov.com/free-downloads/

 

Read this real traders website on theother tabs.

 

Happy trading!

 

Also google stochastics and there are many learning/education sites which explain the various uses on stochastics and how to use it.

Hi germeten,

 

Using stochs. purely as an O/B or O/S indicator is useless as unfortunately you've found out to your cost.

 

Joeytrader is using stochs in the right way by looking for divergences. The inventor of the stochs. indicator George Lane only ever used stochs. divergence as a primary signal, with crossovers as a secondary signal.

 

Looking for divergence between an indicator (e.g. Stochs, MACD or RSI) and price gives you a very good idea of where price is wanting to move to next.

 

Google for "divergence babypips" as that site has a useful document which you can keep by your trading terminal until you're totally familiar with them.

 

I've uploaded one of George Lane's original Stochs. training courses which is worth looking at if your interest is primarily in making the best of trading Stochs.

 

http://www.multiupload.com/NT0QRK19V4

Edited February 12, 2011 by soundfx
Link changed

Thanks for sharing

 

But http://www.4shared.com/file/danrHBrY/Stochastics.html

is no longer valid.

 

Please re upload.

 

Cheers

Link is ok, please try again.

Thanks for sharing

 

But http://www.4shared.com/file/danrHBrY/Stochastics.html

is no longer valid.

 

Please re upload.

 

Cheers

Just my 2 cents. Divergence is also useless if taken on its own. Divergence, O/B or O/S signals should only be taken at S/R else they are useless. I have got burnt myself and lost loads of money. Take care guys unless your money falls from trees.

Hi

 

The link is invalid, after count-down, it will show link invalid, please repost.

Thank you

Stochastics should not be used for entries or exits, only as a timing tool to mark the highs & lows in an uptrending or downtrending market. It is best used in a ranging market for overbought/oversold conditions.

Be careful what you define as overbought & oversold in a strong trending market there is no such thing, it can remain oversold for a very long time in a downtrend & overbought for a very long time in an uptrend.

Try using it with another indicator such as MACD, when that defines an uptrend, only take Stochastics oversold conditions as possible Buy entries and vice versa.

 

Divergences can be another way to trade the stochastics, but I find that you only know that after the fact.

Hi... I have some question too about stochastics.

can any one tell me the difference between fast and slow stochs?

Are they two diferent indicatores or are the same with different settings?

if they are a different indicator wich one came with the metatrader platform and how can i get the other?

Hi guys,

 

The George Lane course notes link I originally put on 4shared has been deleted. I've amended the link in my earlier post.

 

Now uploaded here:

 

http://www.multiupload.com/NT0QRK19V4

Setting 9,3,3 on the hourly chart for oversold/overbought seems good. Of course, this must be combined with other market factors. Hope it helps.

I think Bill Williams is one of the greatest trader/educator of all times. He says there is no such thing as O/B or O/S condition in the markets and I believe he is right. So to use an indicator that was created to signal such levels is futile. I spent a lot of time learning about this indicator in my early years in trading and learned two things; the first is that I have wasted my time, and the second is that if you are set on using Stochastic look for higher settings like hftlh has suggested (9,3,3 or 9,3,7 even as high 14,3,7 ). and look at entering trades when %K crossed the 50 level in the same direction as on the higher TFs. This will have probability and momentum on your side. For divergence it is far better to use RSI and for trade entries preferably a combination of three different periods of it with 14 being the middle one. The other two are up to your style. I hope I did not offend any fans of Mr. Lane, that was not my intention.

Hi, all ..... What is the Stochastic indicator?*