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Strategies & Market Trends : Ask Vendit Off-Topic Questions

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To: rchlrvn who wrote (4217)	1/25/2005 7:17:22 AM
From: Vendit™	Read Replies (1) of 8752

rchlrvn This is the second part of my post that I started to you last night: Would appreciate your thoughts on a few questions about stochastics. Think you said in a recent post it's one of the main things you focus on, if not THE main one==== 1) Have you found stochastics more accurate with some stocks than others? Answer: Yes, stochastic is by far the most powerful single technical trading tool in a trader’s tool box. Preferred settings are 15-5-5 and 5-3-3. You should toggle between the two settings to figure out which setting works best for a particular stock. 2) Do you think it's more accurate with higher volume stocks? If so, about what vol. level would "higher volume" begin? Answer: Technical analysis in general is best used on higher volume stocks. I prefer a stock that trades 1-million shares per day or more. This guarantees volatility. Many lesser volume stocks tend to flat line and simply do not have the price pattern needed in order to measure them using technical tools. 3) Is stochastics less accurate with lower price stocks, say $5 or less or below some other price point? Answer: I have found that the $2.00 and up stock can be successfully traded using T/A as long as sufficient volume is present. Once the price drifts much under the 2.00 mark the stock patterns that it takes to trade using T/A become harder to find. 4) In trading, if going long are you strict about waiting for the cross at 20 before buying or at 80 before selling? Or will you ever jump the gun and, say, maybe buy when both readings are at or near 0 but haven't begun to rise? Do you think buying when both readings are at or near 0 would be likely to get good results consistently? Answer: In your above question you have outlined the text book buy and sell parameters for using stochastic. In real life trading you have to adapt to market conditions and use common sense because there is no perfect world and no perfect stock or trading setup. 5) Do you use the 20/80 cross system no matter the time frame, or do you customize it based on your experience? Answer: There is no one size fits all in technical trading rules. Part of what I do is find the best set of numbers that best work for a particular stock that repeats itself successfully of history. That is called back testing. Once you have established that something has worked historically over the past you can expect the same results moving forward. I.e., a stochastic 15-5-5 setting may work better with stock XYZ then a setting of 5-3-3. The buy and sell signals produced may be consistently at 30/70. Simply find what fits the stock and throw your “Stock Wizard” book in the trash can. Reid

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