Analysis of Asset Allocation

Financial Tutorial  
Discuss about Equities in our Free Forum

Did you Know?
All the bonds are not the same: click here to have the characteristics explained.

Oscillators: Stochastic
All information are subject to terms of use

Computation

The stochastic indicator has been developed by Georges Lane. This indicator has been build based on the following concept:

  • In a positive trend, if the price is close to his maximum value, the intra day closing price will tend to be closer and closer to his intra day high.
  • In a negative trend, if the price is close to his minimum value, the intra day closing price will tend to be closer and closer to his intra day low.

This system uses two lines: %K and %D.

With:

n the chosen lag.
Ct the stock price at the date t.
Bn the lowest price during the last n days.
Hn the highest price during the last n days.

The stochastic %K is:

%K= 100 * {(C-Bn)/(Hn-Bn)}

The second step is to compute the %D. 

%D is the moving average at j days of the numerator of  %K (Nj) divided by the moving average of the denominator of %K (Dj).

Interpretation

The stochastic indicator is interpreted like the RSI. The sale signal is given when both lines are over 80% and the purchase signal when both lines are under 20%.

The lag used for n in %K is often 5 days but (9,11 and 14 days are used as well). The lag used for j in %D is often 3. 

Graph Example: Stochastic

The %K line is in red and the %D line is in blue with n=5 and j = 3.

 

Go to: Top of page - Next Topic - Shares Index - Home

Copyright 2001-8 Sunilcare,. All Rights Reserved.
Sunilcare Group sites: English HTMLFORALL / French ANALYSE des Avoirs Relax energie
Comments or suggestions? Contact the webmaster. View our Privacy Policy. Labeled with IRCA