| SLOW STOCHASTIC – INDICATOR |
| Written by Ivan Yurukov |
| Friday, 18 December 2009 09:52 |
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Slow stochastic is an indicator - type oscillator and was developed by George Lane. It helps you to see the change in sentiment among investors from bullish to bearish and vice versa. Slow stochastic may also indicate situation when traders have exceeded the size of their positions in a given direction and also can signal reversing the trend when trading with currency pairs. How is slow stochastic calculated Slow stochastic consists of two lines - K and D. They oscillate in the Range from 0 to 100. K is based on the current closing price of the currency pair and is in conjunction with the range of historical values for the closing prices for that currency pair. D is the moving average of K. When the closing price of the currency pair is near the top of the Range of historical closing prices, line K (followed by line D) will move higher. When the closing price of the currency pair is near the bottom of the Range of historical closing prices, line K (followed by line D) will move lower.
Let’s see the n example, EUR / USD is closed between 1.4200 and 1.4300 for each of the last 14 trading periods and closes at 1.4295 (near the top of the Range), then K line will move to the top of the Range for the indicator . Signals for slow stochastic trading Slow stochastic trading gives signals when crossing in or out the top or bottom reversing zone. Upper Reversible zone is that in which the indicator has a value above 80. When K has value above 80, it shows that currency pair may be overbought and may soon reverse the trend. Lower Reversing zone is the area in which the indicator has a value below 20. Where K is below 20, it gives a signal that the currency pair may be oversold and may soon reverse the trend. Signals to open a position – when K crosses the value from above 80 to below 80 you can sell a currency pair because it shows that the mood among investors towards this currency pair is shifted from bullish to bearish. When K crosses the value from below 20 to over 20, you can buy a currency pair, because it signals that the mood among investors towards this currency pair is shifted from bearish to bullish. Signals to close a position – when K line reverses the direction of movement, after having crossed either over 20 or under 80 and then crosses the line D. You can close your position, assuming that the mood among investors has changed direction again. Advantages of slow stochastic: - It helps you predict the change in sentiment among investors to a currency pair. Disadvantages slow stochastic: - It lags behind the market because the data used to calculate the slow stochastic is historical, which is not a guarantee that it will happen again in the near future.- May give false signals. |
| Last Updated on Friday, 07 May 2010 10:41 |
