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Slow Stochastic Oscillator
- Bullish: %K and %D lines fall below and then rise above the 20 threshold, indicating bullish potential, along with a %K line cross above the %D line, triggering a bullish signal event if these 3 crossovers occur within a 5-day period.
- Bearish: %K and %D lines rise above and then fall below the 80 threshold, indicating bearish potential, along with a %K line cross below the %D line, triggering a bearish signal event if these 3 crossovers occur within a 5-day period.
The slow stochastic oscillator compares two lines called the %K and %D lines to predict the possibility of an uptrend or a downtrend. In price charts, the %K line typically appears as a solid line, and the %D line appears as a dotted line. The slow stochastic oscillator can be used effectively to monitor daily, weekly or monthly periods.
According to Martin J. Pring, George Lane developed the stochastic oscillator with the premise that during an uptrend, the closing price tends to rise. However, when the uptrend matures, price tends to close towards the bottom of the price range for the period. Likewise, in a downtrend, the reverse holds true.
The difference between the slow and fast stochastic oscillators is the way that the %K and %D values are calculated. Slow stochastic are based on the moving averages values calculated for fast stochastic. As such, John J. Murphy writes that most traders favor slow stochastic because they tend to be more reliable.
For slow stochastic, the %K value is based on a 3-period moving average of the %K fast stochastic value. See fast stochastic for information about the %K calculation.
For slow stochastic, the %D value is based on a 3-period moving average of the %K slow stochastic value (described above).
Pring identifies that a way to differentiate the %K line from the %D line is to remember that %K represents “Kwick” movements, while %D shows movements that “Dawdle”. As such, Edwards and Magee note that “[ordinarily], the %K Line will change direction before the %D Line. However, when the %D line changes direction prior to the %K line, a slow and steady Reversal is often indicated.”
This section identifies that inform trading decisions using stochastic. It should be pointed out, that many technical analysts use stochastic in combination with other patterns or oscillators. John J. Murphy, for example, suggests that “[one] way to combine daily and weekly stochastic is to use weekly signals to determine the market direction and daily signals for timing. It’s also a good idea to combine stochastic with RSI.”
When you are using stochastic with price charts, keep the following factors in mind:
When the %K line nears the 100% or 0% line a powerful move is set to occur. Some technical analysts equate the extremes with overbought or oversold conditions, and that prices cannot get any higher or lower. However, Edwards and Magee identify that this is not true in all situations, and that the extremes instead represent the strength of a price move.
A divergence is said to have occurred when the price and oscillator trend lines move in different directions. A price reversal may follow.
Lane referred to a flattened %K or %D line as hinges. A hinge may indicate that the uptrend or downtrend has become exhausted, and that a price reversal may occur.
When the price has reached 80 or higher, and a divergence has occurred, a crossover is the sell signal. To summarize Lane, Robert W. Colby writes that “the sell signal is more reliable when %D has already turned down when %K crosses below %D”.”
Similarly, when the price has reached 20 or lower, and a divergence has occurred, a crossover becomes the buy signal. Robert W. Colby writes that “the buy signal is more reliable when %D has already up down when %K crosses above %D”.”
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TABLE OF CONTENTS
Candlestick and Chart Patterns (15 Days)
7 Most Important Candlestick Chart Patterns
- Gap Down Chart Pattern
- Gap Up Chart Pattern
- Gravestone Short-term Chart Pattern
- Hammer Candle Stick Chart Pattern
- Hanging Man Short-term Stock Chart Pattern
- Inverted Hammer Stock Chart Pattern
- Shooting Star Candle Stick Pattern
Top 2 Bearish Chart Patterns
Top 6 Bullish Chart Patterns
- Engulfing Line (Bullish) Chart Pattern
- Exhaustion Bar Chart Pattern (Bullish)
- Inside Bar Chart Pattern
- Island Bottom Chart Pattern
- Key Reversal Bar (Bullish) Chart Pattern
- Two Bar Reversal (Bullish) Chart Pattern
Indicators & Oscillators (12 Days)
Bullish or Bearish Indicators
Bullish or Bearish Oscillators
- Bollinger Bands Oscillator
- Commodity Channel Index (CCI)
- Fast Stochastic Oscillator
- Know Sure Thing (KST) Oscillator
- Momentum Oscillator
- Moving Average Convergence/Divergence (MACD) Oscillator
- Relative Strength Index (RSI)
- Slow Stochastic Oscillator
- Williams %R Oscillator
Classic Chart Patterns (29 Days)
Bearish Classic Chart Patterns
- Continuation Diamond (Bearish) Chart Pattern
- Continuation Wedge (Bearish)
- Descending Continuation Triangle Chart Pattern
- Diamond Top Chart Pattern
- Double Top Chart Pattern
- Downside Break Chart Pattern – Rectangle
- Flag Bearish Chart Pattern
- Head and Shoulders Top Chart Pattern
- Megaphone Top Chart Pattern
- Pennant Bearish Chart Pattern
- Rounded Top Chart Pattern
- Symmetrical Continuation Triangle (Bearish)
- Top Triangle/Wedge Chart Pattern
- Triple Top Chart Pattern
Bullish Classic Chart Patterns
- Ascending Continuation Triangle Chart Pattern
- Bottom Triangle Or Wedge Chart Pattern
- Continuation Diamond (Bullish) Chart Pattern
- Continuation Wedge Chart Pattern (Bullish)
- Cup with Handle Bullish Chart Pattern
- Diamond Bottom Chart Pattern
- Double Bottom Chart Pattern
- Flag Bullish Chart Pattern
- Head and Shoulders Bottom Chart Pattern
- Megaphone Bottom Chart Pattern
- Pennant Bullish Chart Pattern
- Round Bottom Chart Pattern
- Symmetrical Continuation Triangle Bullish
- Triple Bottom Chart Pattern
- Upside Breakout Chart Pattern – Rectangle
Best Trading Theories (4 Days)
- Basics of Dow theory trading strategy forecasts
- Motive (Impulse) Waves
- Corrective Waves
- Wyckoff Chart Reading
Kind attention: this course is helpful for beginner and intermediate traders. It’s free for everyone. Advanced modules, trading strategies, and data (in-depth) are available for Moneymunch’s premium subscribers.
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