Stochastic Oscillator

[ping_manoj]

Hello friends,

Is the Stocastic Oscillator a reliable one?
I mean I have seen on other sites and personally developed this chart, but I am a little confused with this one.
The %K Fast is extremely fast and crosses over so many times that if one trades based on this chart he/she will make great losses.
On the other hand, the %K(full) is very slow. Infact it indicated posivite movement even later than the MACD crossover.
The %K(Slow) one is OK but the OverBought/OverSold ratios seem to be of no meaning to it. This chart can enter the OverSold levels and remain there for days and weeks together.

Hence the question, is it reliable or only I am getting this feeling?

Regards

Manoj

 

[kuldeep49]

Re: Stocastic Oscillator

Hello friends,

Is the Stocastic Oscillator a reliable one?
I mean I have seen on other sites and personally developed this chart, but I am a little confused with this one.
The %K Fast is extremely fast and crosses over so many times that if one trades based on this chart he/she will make great losses.
On the other hand, the %K(full) is very slow. Infact it indicated posivite movement even later than the MACD crossover.
The %K(Slow) one is OK but the OverBought/OverSold ratios seem to be of no meaning to it. This chart can enter the OverSold levels and remain there for days and weeks together.

Hence the question, is it reliable or only I am getting this feeling?

Regards

Manoj

Manoj,
I find it quite helpful for entry during the day in the 1, 3, & 5 min charts. But I am less sure of its reliability on a daily or weekly chart.
Regards
Kuldeep

 

[ping_manoj]

Re: Stocastic Oscillator

Manoj,
I find it quite helpful for entry during the day in the 1, 3, & 5 min charts. But I am less sure of its reliability on a daily or weekly chart.
Regards
Kuldeep

Thanks Kuldeep,

Would be obliged if you can shed some light on how to enter for intraday?

Regards

MANOJ

 

[bhatia_ash]

Re: Stocastic Oscillator

My personal opinion is that stochastics (or any other oscillator) should be used as overbought/oversold indicators only in ranging markets (like S&P 500), in trending markets like NIFTY, overbought is actually a signal to go long as it usually spends a lot of time there while the prices are moving up.. Also, if it's too whippy that may mean that your time frames need readjusting..

 

[karthikmarar]

Re: Stocastic Oscillator

Hi

The stochastic oscillator is an Indicator seldom understood properly. The stochastic oscillator has really got nothing to do with buying or selling.

The stochastic oscillator tries to plot the ratio of today’s level from the bottom of the selected period to the maximum level in that period. As today level rises compared to the maximum level the indicator rises. When today’s level is more than the overall level of the period the oscillator peaks. As a stock is not expected to rises continuously there is a probability the stock would reverse / pull back. In others words lot of buying has gone in that stock and some profit booking could be expected. So the stock is said to be in the over bought region. Of course it is not necessary that the stock will reverse or pullback and could still rise further. So the stochastic remains in the over bought region for long till the pullback / reversal occurs.

So like Bhatia said the stochastic oscillator work fine when the market is ranging. In a up trend the stochastic oscillator gives good entry points when it moves out of the over sold region as these points refer to the resumption of trend after a pull back. So use the oversold signals for entry in a up trend. In the same way use the overbought signals for shorting in a down trend.

Also it is important at what time frame you are looking. The normal 5-day stochastic represents a very short period. This would oscillate up and down quite frequently as it represents a week on a daily chart. At the same time a 15-day stochastic on a daily chart would represent a three week range of the market. This would oscillate less frequently. So one should chose the parameters as per time frame he is looking

Regards

Karthik

 

[kuldeep49]

Re: Stocastic Oscillator

Hi

The stochastic oscillator is an Indicator seldom understood properly. The stochastic oscillator has really got nothing to do with buying or selling.

The stochastic oscillator tries to plot the ratio of todays level from the bottom of the selected period to the maximum level in that period. As today level rises compared to the maximum level the indicator rises. When todays level is more than the overall level of the period the oscillator peaks. As a stock is not expected to rises continuously there is a probability the stock would reverse / pull back. In others words lot of buying has gone in that stock and some profit booking could be expected. So the stock is said to be in the over bought region. Of course it is not necessary that the stock will reverse or pullback and could still rise further. So the stochastic remains in the over bought region for long till the pullback / reversal occurs.

So like Bhatia said the stochastic oscillator work fine when the market is ranging. In a up trend the stochastic oscillator gives good entry points when it moves out of the over sold region as these points refer to the resumption of trend after a pull back. So use the oversold signals for entry in a up trend. In the same way use the overbought signals for shorting in a down trend.

Also it is important at what time frame you are looking. The normal 5-day stochastic represents a very short period. This would oscillate up and down quite frequently as it represents a week on a daily chart. At the same time a 15-day stochastic on a daily chart would represent a three week range of the market. This would oscillate less frequently. So one should chose the parameters as per time frame he is looking

Regards

Karthik

Thanks Karthik.

This is probably how I try to use this indicator. Suppose I have decided to buy ABC once it reaches a level, say, 100. The next day when the market opens, as is normal, it tends to be volatile in the opening half hour or so and it would be imprudent to enter at this point even if ABC hits 100. So I wait and first determine that the 100 level is sustainable and then enter based on the Stochastic entry signal after a pull back (i.e., when the stoch crosses the oversold line upwards). I find that this entry point works most of the time.

Would appreciate your comments.

Regards
Kuldeep

 

[venkat1926]

I am using stochastic RSI(14) with Macd and voume to give buy and sell decisions. But I am always intrigued by stochastic RSI. In already rising market while MACD shows likely increase and volume above average stoc RSI shows above 80 or even 100 showing overbought situation. But the share is going still further and price trend is also rising. I realise technical analysis may give contradictory indicators. But will some expert give an insight to face the situation as described above. thanks.

 

[mohan.sic]

Dear Venkat,

There are no overbought / oversold levels. A 1 % price move may push rsi(14) to 70 levels in 1 mt time frame and if you see it on a 5 mt time frame chart, the same rsi( 14) will be at 50 levels ( normal level). How can it be said that a stock is overbought ....? Every buy has a sell.. If a stock is at overbought level with 1 million shares bought why cant it be said that it is over sold with 1 milion shares sold ( because every buy has a sell). So here what we usually see is based on price move, if it moves up we say over bought and over sold when it moves down. As mentioned before the so called overbought level on 1 chart may not be overbought on different time frame and could be at oversold zone on another time frame.

Indicator readings either rsi, macd or stochastics what ever, are price derivatives. Indicator readings will move as per price move ( based how they are formulated). Price is the master. price leads and indicator follows.

 

[molthi]

Hello friends,

Is the Stocastic Oscillator a reliable one?
I mean I have seen on other sites and personally developed this chart, but I am a little confused with this one.
The %K Fast is extremely fast and crosses over so many times that if one trades based on this chart he/she will make great losses.
On the other hand, the %K(full) is very slow. Infact it indicated posivite movement even later than the MACD crossover.
The %K(Slow) one is OK but the OverBought/OverSold ratios seem to be of no meaning to it. This chart can enter the OverSold levels and remain there for days and weeks together.

Hence the question, is it reliable or only I am getting this feeling?

Regards

Manoj

Any indicator can be killed in shorter time frame. So IMO , start with higher TF weekly /Daily to get a feel of the indicator and then gradually come to shorter TF. Better stay in higher TF.