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Al, the attached chart of DJI is a good illustration of
how a high level of stochastic can serve as a warning of a
possible downturn that is more serious than a normal small pullback.
The downturn that started about a week into September
2004, was preceded by %K having almost equal values for three trading days in a
row, and on the trading day just before %K crossed DOWN through %D, both %K and
%D were very close to each other in value.
I consider this tight range of values to be a
sign that the previously prevailing Bulls are about to lose to the
Bears. Conversely, a similar situation of low stochastic readings can
signal a possible breakout.
This same tight range of %K and %D values also
developed in the last third of December, 2004 just before
a downturn.
It might be a good idea to do nothing but stare at charts
for awhile in order to more closely observe the interplay of %K and %D just
before breakouts, and just before major downturns. Hope this helps.
Ron D
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Hi, Ron,
I've been looking for a qualifier for my short-term
system's long and
short signals, and your idea seems to be a good one. There
are many
different variations of the Stochastic indicator. Which one do you
use
to qualify your long and short signals? I presume from what you
write
in your message that you use 2 different ones, one for an index,
the
other for the individual stocks you are trading. Can you give
an
example of how you invoke the Stochastic as a qualifier for your
system
signals? Thanks a million, Ron.
Regards,
Al
Venosa
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