Jump to content

question about stochastics...


Recommended Posts

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 by germeten
Link to comment
Share on other sites

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.

Link to comment
Share on other sites

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 by soundfx
Link changed
Link to comment
Share on other sites

  • 2 months later...

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.

Link to comment
Share on other sites

  • 1 month later...
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.
Link to comment
Share on other sites

  • 1 month later...

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

×
×
  • Create New...