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Stochastic secrets
By RedTrader and contributors, 07‐10‐08
A. Preamble
B. Quotes
The purpose of indicators appears to be
misunderstood by a certain class of traders.
An indicator comes in help to a trader in the “The losers teach you, the winners
next ways: feed you.”
〉 If we consider the fact that a classic Titus
indicator (Stochastic, RSI, Bollinger
bands, moving average, ADX etc.) is
used by a big percent of the active
traders, we can point to the “If for a song, a certain instrument
conclusion that all of them, seeing at will make the song complete, for a
a certain time a certain signal (or trader, an indicator would ennoble the
almost the same signal) of the classic trading style.”
indicator they use, will be tended to
act in the same way. This is the result RedTrader
of the so called mass psychology. So,
an indicator, helps a trader by offering
him a tip regarding what the majority
"Stochastic helps you to <<listen>>
sees and, as a result, is tended to do;
to the market."
〉 If the indicator is coupled to a
Aiyahmarklah
profitable strategy, it’s signal(s)
contribute to a much bigger certainty;
〉 In some strategies it offers a better
price or an advantageous moment for
the trade opening.
P.S. Every indicator has it’s limitations.
1
〉 if it moves under 30 but not under 20,
C. Stochastic settings wait to get over 30 and then buy;
〉 if it moves under 20, wait to get over 20
and then buy (on a lower volatility it’s
recommended to get over 30).
Values Parameters Levels
80
80
↓
K% = 3 70 70
↓
MA = simple
D% = 2 50
Price field = 50
Slowing = 3 30
Low/High
20 ↑
30
↑
20
(Assuming that the trader, respects the basic
rules of trend trading).
2. Knotted crossing (kc)
D. Entry points
Characteristics:
1. Classic crossing (cc) 〉 it occurs over (or on) the 70 or 80
level/under (or on) the 30 or 20 level;
〉 makes a knot 1;
Characteristics: 〉 after the knot, it returns in the 70‐30 (80‐
20) interval.
〉 it occurs over the 70 or 80 level/under
the 30 or 20 level;
1
〉 has only one intersection; Knot = a series of (usual) 3 consecutive
〉 after the intersection, it returns in the intersections, disposed horizontally or angled,
70‐30 (80‐20) interval. occurring outside or on the 30‐70 interval,
intersections from which only the last is reliable.
Interpretation:
Interpretation:
〉 if it moves over 70 but not over 80, wait
to get under 70 and then sell; 〉 if the knot forms above 70 but not over
〉 if it moves over 80, wait to get under 80 80, wait to get under 70 and then sell;
and then sell (on a lower volatility it’s 〉 if the knot forms above 80, wait to get
recommended to get under 70); under 80 and then sell;
2
〉 if the knot forms under 30 but not under Interpretation:
20, wait to get over 30 and then buy;
〉 if the knot forms under 20, wait to get 〉 after the signal over the 70 level it’s
over 20 and then buy. received, then, on a bigger time frame a)
there should have been received a classic
crossing buy type signal (§ D.1.) or b) the
stochastic should be in the continuation
80
↓ status (§ E.3.);
70
↓ 〉 after the signal under the 30 level it’s
received, then, on a bigger time frame a)
there should have been received a classic
50
crossing sell type signal (§ D.1.) or b) the
stochastic should be in the continuation
↑
30 status (§ E.3.).
↑
20
80
↑
70
3. Reversed crossing outside the 30‐70
50
interval (outside rc)
30
The reversed crossing differs from the knotted ↓
20
crossing in this way:
〉 between the first and second
intersection there is a free space (no Specifications:
other intersections) that corresponds on
〉 for recommended close points see § F.
the chart with at least 2 closed
candles/bars .
Characteristics:
4. Reversed crossing inside the 30‐70
〉 occurs over the 70 level/under the 30
level; interval (inside rc)
〉 has 2 intersections;
〉 between the first and the second
Read first the bolded text from § D.3.
intersection there is free space;
〉 the second signal is opposite to the first. Characteristics:
〉 occurs under the 70 level/over the 30
level;
3
〉 has 2 intersections; 5. Power peak (pp)
〉 between the first and the second
intersection there is free space;
〉 the second signal is opposite to the first. Characteristics:
〉 consists of 2 classic crossings (as a result,
occurs over the 70 level/under the 30
Interpretation: level);
〉 on a flat or a descending trend (when sell
〉 after the signal under the 70 level it’s
is expected), the first intersection will be
received, then, on a bigger time frame a)
a higher‐high and the second intersection
there should have been received a classic
a new lower‐high;
crossing buy type signal (§ D.1.) or b) the
stochastic should be in the continuation 〉 on a flat or a ascending trend (when buy
status (§ E.3.); is expected), the first intersection will be
a lower‐low and the second intersection a
〉 after the signal over the 30 level it’s
new higher‐low.
received, then, on a bigger time frame a)
there should have been received a classic
crossing sell type signal (§ D.1.) or b) the
stochastic should be in the continuation Interpretation:
status (§ E.3.).
〉 if on a flat or descending trend, it gives a
cc signal over the 70 level, but the price
remains in consolidation, wait for another
80
cc signal under or on the 70 level and
70
then sell;
↑
〉 if on a flat or ascending trend, it gives a cc
50
signal under the 30 level, but the price
remains in consolidation, wait for another
↓ cc signal over or on the 30 level and then
30 buy.
20
Higher
high
Lower
80
high
Specifications: 70
↓
〉 recommended if the correction received a
classic crossing but the impulse didn’t, 50
with the scenario that stochastic couldn’t
give as well a classic crossing signal and ↑
30
reversed crossed in the 30‐70 area;
Higher
〉 because the outside rc tends to be low 20
Lower
stronger than the inside rc, more low
attention and a good money
management are required.
4
6. Divergence 8. Minus
As many other oscillators, stochastic also shows Characteristics:
divergences.
〉 the stochastic lines (%K and %D) merge,
forming a single straight line, which can
be horizontal or angled.
7. Arc
Interpretation:
Characteristics: 〉 if it occurs inside the 30‐70 interval, a)
look for a signal on a lower time‐frame or
〉 outside the 30‐70 interval, it makes an arc b) wait until the lines unmerge and open
(a long loop which stays outside a long a position in that direction (which should
while). be the same as the direction indicated
before the merge) – otherwise don’t open
any position;
〉 if it occurs outside the 30‐70 interval a) if
Interpretation:
you have an active position, lock a profit
〉 on a flat or descending trend, after it and wait the eventuality of continuation
comes under 70, sell; of the previous move or b) treat it like a
〉 on a flat or ascending trend, after it cc crossing.
comes over 30, buy.
80
↓
80 70
70
↓
↓
50
↑
50
30
↑ ↑
30 20
20
Specifications
〉 This procedures requires a bigger stop
loss.
5
E. Waiting moments Interpretation:
〉 wait for stochastic to touch the 80 level,
and after that wait for signals specified in
1. End of low noise (eln) §D.;
〉 wait for stochastic to touch the 20 level,
and after that wait for signals specified in
Characteristics:
§D.;
〉 a period when in the 30 level/70 level
area many contradictory signals were
received. 80
↓
70
Interpretation:
50
〉 wait until stochastic touches the 50 level
↑
and then you can a) wait for signals
30
specified in §D. or b) if it comes from level
20
30, buy and if it comes from level 70, sell.
80
70
2. Continuation status
↑ ↓ 50
Interpretation:
30
〉 assuming that at least one trade is open
and has it’s locked profit, as time as on a
20
bigger time‐frame, an opposite signal it’s
not received, the trader should wait for
the price to move in his/her favor.
1. End of high noise (ehn) F. Closing points
Characteristics:
1. The opposite signal
〉 a period when inside the 30‐70 area,
many contradictory signals were received.
Interpretation: 〉 assuming that at least one trade is
open and has it’s locked profit, after on a bigger
6
time‐frame, an opposite signal was received, the
trader should think about a) readjusting the © Titus
amount of locked profit or b) close the trade and
wait for a reversal.
Values Parameters Levels
K% = 30 80
MA = simple
D% = 4
G. Other stochastic settings Price field =
Slowing = 4 20
Low/High
© Titus
Values Parameters Levels
K% = 5
Values Parameters Levels
80
MA = simple
D% = 3
20 K% = 8 80
Price field =
Slowing = 3 MA = simple
Low/High D% = 3
Price field =
Slowing = 3 20
Low/High
© aiyahmarklah
Values Parameters Levels
K% = 4 80
MA = simple
D% = 2 50
Price field =
Slowing = 3 20
Low/High
K% = 14 80
MA = simple
D% = 3 50
Price field =
Slowing = 3 20
Low/High
K% = 14 80
MA = simple
D% = 4
Price field =
Low/High
Slowing = 7 20
7