STOCHASTICS B (K% D)
The stochastic marker was devised by analyst George Lane, who relied on the idea that during an upward trend, prices usually close close to the peak of the recent range, suggesting a willingness to break up this price range steadily. However, when the upward trend approaches maturity and exhaustion levels, then the values are constantly lower than the maximum of the recent range. The opposite appears to be the case when the values are in a downward trend. The stochastic index was initially very popular in international futures markets in the mid-80 and later spent using it on the stock markets with great success.
This indicator can be a valuable tool for identifying upcoming peaks and bottoms, helping the timing of transactions close to the reversal points. Measures the placement of a current value within a recent range of variance. It consists of two sub-indices% D and% K.
The% D indicator is the most important as it provides the market signals of the stochastic marker. The formula for calculating% K is as follows:
% K = ((Cx L5) / (H5 β L5)) 100
where, C is the closing value, L5 is the lowest intraday value of the last 5
days and H5 is the highest intraday value of the last 5 days.
The% K indicator swings between 100 and 0 and is considered over-sold when it is over 70 and over-sold when dropped below 30. That is, if the value moves near the upper limit of the recent range, then% K will get values greater than 70. If the value tends to approach the minimum of its recent range, then% K will take values less than 30.
% D is slower than% K and also oscillates between 100 and zero with the same over-sold and over-priced price ranges. % D is a normalized version of% K.
The formula for calculating% D is as follows:
% D = (H3 / L3) 100
where H3 is the sum of 5 (CX L3) of last days and L3 is the sum of 3 of 3 of last days.
The stochastic marker consists of a graph in which% K and% D are placed together. % D is depicted as a dashed curve, while% D is a continuous curve. Also, two horizontal lines are placed in the diagram, one in 70 and one in 30, to indicate the hypermarket and supermarket area of the stochastic marker. Between lines 70 and 30 there is the neutral zone of the stochastic marker.
There are several ways of interpreting the stochastic marker.
1) We buy when the pointer (the% bb or bb% Db) drops below a level (20 for example), and then exceeds that level . We sell when the pointer exceeds a level (80 eg) and then falls below that level.
2) We buy when line b ????????? ???? exceeds the line β ????% Dβ ???? and we sell when it's the other way round.
3) We are looking for discrepancies. For example, when the stock makes a new record and the Stochastic Index does not exceed its previous heights.
In the diagram below, points A, B, C, D, E, Z, H represent points of sale and sale according to interpretations a and b given above. According to Interpretation β in A, C, E, H we have to sell, while in B, D, Z we have to buy. In B and C, not only do our actions conform to the criteria of interpretation b, but also to that of interpretation a.
It is obvious that the Stochastic Index continuously creates points of sale or sale and is not the ideal indicator for investors with long-term goals.(IMPORTANT-WHEN SETTINGS ARE THE KEY!)
HOW WE CONSIDER THE BASIC THEORY OF THE STOCHASTIC
Let's go to MT4 now a different approach which analytics with adjustments and parameters adapted to the costume.
We are in a four-dollar euro dollar chart and we are using the parameters as described in the oscillator graph - while changing the basic settings we changed the other fast stochastic to an index of what a slowdown with what reliable marks!
the index settings are k% d% slow (deceleration) type of mobile device
if we apply the same rules on a day then the index will be very slow!
on day set 10,6,6 with old linear moving average!
you can experiment with different settings in different timeframes so you can see the results in practice.
IMPORTANT 1
In the above example, the signals fulfilling 2 conditions were executed
intersection of the lines k% d% with simultaneous exit from over-purchased and over-sold levels, setting at these levels prices 80 & 20 (not the classic prices 70-30!)
Equilibrium level of the index is 50.
IMPORTANT NOTE 2n - SYNOPSIS ...
It is obvious that the Stochastic Index constantly creates points of sale or sale and is not the ideal marker for investors
with long-term goals.
ONLY D1 W1 DIAGRAMS MUST BE REGARDED WHAT RELIABLE SIGN WITH 10,6,3 (ORIGINAL SETTING IS 5,3,3)
IF WE CHANGE THE PARAMETERS IN H1 H4 5,3,3 TO 27,15,9 WE HAVE A VERY GOOD SIGNAL FOR H1 H4 AND THE CROSSINGS ARE WITHOUT SO MUCH "NOISE".
THE USE OF MY CONSTITUTION SHOULD BE LIKELY RECOVERED AND NOT AS A MAIN SIGNATOR.
is a good oscillator if we first come from voltage tagging model (link) if we have "belt" (laterality).
in regular markets its use will be "harmful" see the crucial difference! (link)
is very sensitive to market noise (microprocessors) and over-sold surplus levels are always taken into account with the lead of the trend.
the changes of the parameters as I gave it "smooth" its curves and the continuous signals.
the stochastic marker is a perfect oscillator and the sign of the entrance at the same time is fully understood and regulated b.
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