David, The formula for the %K parameter of the Stochastic is:
(today's close)-(lowest low %K periods)/(highest high %K periods)-(lowest low %K periods).
For example, to calculate a 10-day %K: First, find the security's highest high and lowest low over the last 10 days. For this example, let's assume that during the last 10 days the highest high was 46 and the lowest low was 38--a range of 8 points. If today's closing price was 41, %K would be calculated as:
(41-38)/(46-38) = 3/8 = .375
The 0.375 in this example shows that today's close was at the level of 37.5% relative to the security's trading range over the last 10 days. If today's close was 42, the Stochastic Oscillator would be 0.50. The 0.50 would show that the security closed today at 50%, or the mid-point, of its 10-day trading range.
The above example used a %K Slowing Period of 1-day (no slowing). If you enter a value greater than one, you will need to average the highest high and the lowest low over the number of %K Slowing Periods before performing the division.
A moving average of %K is then calculated using the number of time periods you specified in the %D Periods. This moving average is called %D.
Finally, multiply all stochastic values by 100 to change decimal values into percentages for better scaling (e.g., 0.375 is displayed as 37.5%).
The Stochastic Oscillator always ranges between 0% and 100%. A reading of 0% shows that the security's close was the lowest price that the security has traded during the preceding x-time periods. A reading of 100% shows that the security's close was the highest price that the security has traded during the preceding x-time periods.
The parameters for the Stochastic Oscillator are shown below.
%K Time Periods- the number of time periods used in the stochastic calculation.
%K Slowing= the number of time periods used in the internal smoothing of the %K value. A value of 1 is considered a fast stochastic; the default value of 3 is considered a slow stochastic.
%D Time Periods- the number of time periods used in the moving average of %K. (i.e., exponential, simple, weighted, time series, triangular, or variable) used to calculate %D.
I hope this helps. BTW, the %D parameters are not weighted in my example, but you obviously can apply a weighted, exponential, time series etc., %D, in my example is a 55 day moving average.%K is 25 with a 3 day slowing.
Good Trading. LF
P.S. Might I suggest you spend about $600 for good technical analysis software? MetaStock is top shelf IMO. |
