In both instances, the rally never materialized, and in addition to losing money, you are also losing time sitting in the position. So, where does this leave us? The simple answer is that you can take a position in the direction of the primary trend. For example, as you see the slow stochastics in Apple begin to stay under 20, use this as an opportunity to take a short position to ride Apple down.
Going in the direction of the sloppy, slow stochastics will feel very strange at first. At this exact moment, you need to fight the need to go counter to the trend and realize that the money is in the least path of resistance.
Strategy 2 has a higher difficulty level then trading smooth slopes; however, it still lacks the context of the full technical picture of a security. As we mentioned earlier, slow stochastics can provide false signals. The best way I have determined to overcome this flaw is to combine the slow stochastics with trendlines to identify proper entry and exit points.
The above image is a 5-minute chart of Apple.
You can see how as Apple goes through its corrective move lower, it hits a support trendline twice and bounces higher. You will also notice the slow stochastics had several moves below 20 that either resulted in lower prices or sideways action. This is why as a trader you cannot blindly buy a stock just because the slow stochastics is under pressure.
If you use the confluence of the stock hitting support in conjunction with a bottoming slow stochastic, then you are likely entering the trade at the right point. The mechanics of the situation are such that the trend traders are buying as Apple hits support; at the same time the stochastics traders are buying the oversold reading. The key to this game is buying and selling right before everyone else does.
If you have a way of identifying when multiple players will be taking the same action for various reasons, you my friend are ahead of the curve. The next chart is of Google and as you can see the stock was trending higher nicely. As the stock hit resistance for the third time, Google also had a slow stochastics reading of over Just as I mentioned earlier about the false buy signals, look at the number of false sell signals.
Beyond missing out on trading profits, allowing the indicator to whipsaw you as this would also rack up pretty hefty trading commissions. Now, I do not want to leave you with the impression that you can simply buy or sell a stock when 1 it is hitting a trendline and 2 going over 20 or above Trading is not that simple. You can, however, utilize the slow stochastics to validate the health of a trend relative to previous peaks by seeing if the stock was able to make a higher or lower slow stochastics reading.
This way you can size up a recent high relative to its predecessor to determine if its really time to sell or if the stock still has room to go, regardless if a trendline is staring you in the face. Anyone on the web can figure out after reading the first 3 Google results that traders should be when the slow stochastics crosses above 20 and sell when the slow stochastics crosses below Another approach is to allow the slow stochastics to cross above a certain threshold to confirm that the counter move has begun. This level could be 50, The downside to this approach, of course, is that the move is likely to have a few points behind it before you enter the trade.
On the flip side, this will prevent you from getting caught in a stock that is flatlining.
Stochastic Oscillator Trading Strategy: Day Trading Tips | The Secret Mindset
To illustrate this example, I will be using This is, of course, a play on the In the above chart, we see that the stock OAS crosses above The key with using a higher slow stochastic reading before entering a buy signal is to use this method for fading morning gaps down. The reason this approach works well is it allows for you to validate the initial gap down is weakening and you can take a long position. If you were to go in the direction of a strong uptrend and wait until This approach also works well in the late afternoon trading session. Those that follow the Tradingsim blog know that I do not trade in the afternoon; however, strategy 4 was built for late-day setups.
Later in the day, the market has less volume and will experience several false breakouts relative to the first hour of trading. To this point, as a day trader, you will need a method for assessing which breakouts or moves are valid. Notice how in the CLF example the stock had an expected retracement after the morning pop. Once CLF cleared By waiting on the slow stochastics to confirm the breakout in conjunction with the trendline break, you are allowing both the price action and technicals to confirm the start of a new uptrend.
They both are oscillators, so on the surface, they do resemble each other quite a bit. As you can see in the above chart, the stochastics provided a number of oversold readings, while the RSI only had one.
What is the Stochastic indicator?
While the RSI is also looking back 14 periods, the calculation is centered on the highest percentage gain and lowest percentage loss over n periods. However, the slow stochastics cares little for closing prices and focuses more on the highs and lows over the period. This is why on average the stochastics will have a smoother appearance and fluctuates more frequently between overbought and oversold.
The indicator does an amazing job of visually depicting when extreme levels have been reached.
Stochastic Support Resistance Day Trading Strategy
For me, I ultimately stopped using the indicator altogether. This is because I use a method similar to Darvas and scale up as positions go in my favor. Well, these constant overbought readings would shake my nerve at times and I would begin to see the pending sell-off, which never materialized. I opted for removing the indicator from the chart in order to quiet some of the noise in order to better manage my positions.
Like everything in trading, it has to do with the individual trader and by no means indicates one tool or method is any less useful than the next. The slow stochastics is a great indicator for identifying the primary trend. If you take it a step further and combine some basic technical analysis methods such as trendlines, you will be able to uncover some hidden trading opportunities in the market.
TradingSim accelerates the steep learning curve of becoming a consistently profitable trader. The platform does this by allowing you to replay the market as if you were trading live. To see how TradingSim can help improve your bottom-line numbers, please visit our homepage. It generates signal before the move occurs in the stock prices. The traders get early signals for a trade. This enables the traders to maximize their profits.
Stochastic Oscillator is a momentum indicator. It has an important role in technical analysis for a trader. Their significance lies in predicting the appropriate entry and exit prices in a trade. Stochastics was developed by George Lane. Stochastics give a relatively reliable signals for trading. They are really best if you combine them with another one or two technical indicators. Different trading software use different settings for stochastics. They are usually set as default in these software.
I will be discussing here the settings for stochastics which worked best for me for swing trades. Stochastic give the most recent closing price of a security in relation to the average highs and lows made by the security in a particular time frame. Calculation :- Now a days there is no need to manually calculate the stochastic. All the modern day charting software can draw it directly on the security chart.
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Thus, it makes it quite easy to apply it. It represents if the security is overbought or oversold. Values above 80 represent overbought. Values below 20 represent oversold security and therefore possible reversal in the ongoing trend. It needs to be remembered that overbought security may not start retracing back immediately. It has the probability of remaining in overbought territory for extended periods of time. Similarly true is for oversold conditions. So, it becomes imperative to trade in the direction of longer term trend of the market. In bull markets, you can look for oversold security to go long.
On the other side, look to go short in overbought situations in a longer bearish trend. It is better if we apply it along with other indicators like relative strength index RSI or MACD or moving average convergence divergence indicator. Stochastic can be more useful if applied along with support and resistance for that stock or security. Fast stochastic are more sensitive to price moves. Hence probability of errors can be there in very short-term trading. Slow stochastic being slow are more useful as being less sensitive. The margin of error is considerably reduced. So slow stochastic are more popular among the traders when looking to apply stochastic in their trading plan.
In more advanced analysis, traders can look for positive and negative divergences.