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Gold/Mining/Energy : CDN. MOMO PUPPIES

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To: Ed Pakstas who wrote (2702)	7/1/1999 1:42:00 AM
From: keith massey	Read Replies (1) of 36688

Ed... The example I gave was for a 30 day chart or 100 day chart or intraday. The stochastics are all calculated the same way...only the period of the %K and %D is different. Dr. Elders book is a great book but doesn't do a very good job about explaining the limitations of stochastics and other oscillating indicators (e.g RSI). When a stock is trending (a steady up move over a long period with only small corrections along the way), oscillating indicators will show overbought signals (or oversold signals for falling stocks) even when the stock is still going up and up and up. The stochastics may look like they are giving an advanced indications of a drop but this is often because the person looking at the stochastics after the fact is looking for it this advance. They forget to look at all the false signals that were given. I have back tested stochastics on tons of charts and have found that whipsaws (false buys/sells) cost me more in losses than the profits I would make from the really buy/sell signals. This back testing was done using Metastock using various buy and sell signals from the stochastics. For example a basic back test for stochastics would be....look at the last ten years of the stock...buy when %K crosses %D and sell when %D crosses %K. After 10 years what would my profit be? In a big percentage of the stocks I had lost money after 10 years using both basic and advanced back tests. Don't get me wrong....when a stock is oscillating, stochastics work amazing. The problem is....how do you know the stock is oscillating and isn't at the start of a long up trend. It would take me forever to explain all of this in writing...I'll PP you my phone number...it would be easier to talk in person. Best Regards KEITH

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