Online Trading Concepts

Stochastics

Stochastics

  1. Stochastics Fast & Slow
  2. Stochastic Buy & Sell Signals
  3. Stochastic Price Divergences

Stochastic Fast

Stochastic Fast plots the location of the current price in relation to the range of a certain number of prior bars (dependent upon user-input, usually 14-periods). In general, stochastics are used to measure overbought and oversold conditions. Above 80 is generally considered overbought and below 20 is considered oversold. The inputs to Stochastic Fast are as follows:

Stochastic Slow

Stochastic Slow is similar in calculation and interpretation to Stochastic Fast. The difference is listed below:

The Stochastic Slow is generally viewed as superior due to the smoothing effects of the moving averages which equates to less false buy and sell signals. A comparison of the two stochastics, fast and slow, is shown below in the chart of the Nasdaq 100 ETF (QQQQ):

Comparison of Stochastic Fast and Stochastic Slow

As will be shown on the next page, Stochastics offer clear buy and sell signals and help in determining overbought or oversold price conditions.

Next Page - Stochastic Buy & Sell Signals

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