Online Trading Concepts


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 in an attempt to uncover 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 might be viewed as superior due to the smoothing effects of the moving averages which equates to less false potential 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

The next pages discuss possible buy and sell signals and how stochastics may outline areas of overbought or oversold price conditions.

Next Page - Stochastic Potential Buy & Sell Signals

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