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What is stochastic? The stochastic is an indicator developed by George Lane composed of two lines called %K and %D. It is based on the observation that when prices rise, the closing price is closer to the highs of the day, and when prices fall, the closing price is closer to the lows of the session. What tries this oscillator is to establish in % as there is the price of closing of the session with regard to the range of prices of the period of calculation.

Why does it serve the Stochastic? The indicator function when the value are not in strong trends and is used to determine the various zig-zags in which they move prices, and provide buy and sell signals. Is a standard indicator that moves within a range from 0 to 100 and has two areas or levels which are particularly important when they are reached by the indicator. These areas or levels are between 0 and 20 and between 80 and 100. Sometimes preferences of these limits are expanded to 30 and to 70. These areas also mark the overbought and oversold zones respectively.

How do you use the stochastic? The default parameters used in it are for Classic Stochastic 14 %K and 7 %D, where 14 days is the period that is taken as a reference for the calculations and 7 to calculate the smoothed version of %K, in this Classic Stochastic also known as Fast Stochastic. Also used another version known as Slow Stochastic and uses 3 parameters, the latter a new smoothing applied to the lines, whose default value is typically three. The indicator gives buy signal when a cut occurs in line %K above the% D in the oversold zone 0-20 (30). The indicator triggers a sell signal when a cut occurs in line %K beneath the %D in the overbought zone (70) 80-100 Also widely used for analysis of divergences. Your line cuts always mark a change of direction in prices; the problem is that it is not possible to quantify the range of motion. Tips of Trading: If the market is in trend uses indicator cuts off the overbought and oversold areas to increase their positions in the direction of the trend. In a market with strong bullish trend to increase their long positions each time the line %K is above the %D. In a market with strong bearish trend increase their short positions each time the line %K will fall below the %D. This is known as pyramiding, you see how your benefits are increased substantially in winning positions, but that if, be more rigorous with their stops. Indicator references: George C. Lane, Investment Educators, Des Plains, IL

Example Image Stochastic in the Metatrader platform

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Erick Gálvez
Author: Erick GálvezWebsite: http://www.asdforex..comEmail: This email address is being protected from spambots. You need JavaScript enabled to view it.
ASDForex manager and professional trader since 2008. I am also Aleforex.com manager where you can view the services that I give
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