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Strategies & Market Trends : Stochastics
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To: TLindt who wrote (3)1/19/1998 10:40:00 PM
From: Wayners  Read Replies (2) of 927
 
One very important thing as a warning to the wise is to make sure that when you are using stochastics that you never ever trade against the trend. Lets say you are using a 14 day stochastic. Put a 14 day moving average on the price chart. Is the 14 day moving average currently (as in right now) on an upward slope? If it is AND the 14 day stochastic is showing a buy signal (oversold), I'd say you have a good one. Look for low volume too at the same time. If you try it (buying) on a steep downtrend, the stochastic will often go from 20 to 80 WITH NO PRICE APPRECIATION before the price makes a big drop. This simple advice will save you lots of dollars and frustration. Shorting is just is easy. Find downtrends by say the 14 DMA and short the stock when the stochastic gets over 80. Neutral trends are pure gambling. With neutral trends my advice is to stay clear of pinched bollinger bands. Normal width bollinger bands should be traded at the upper and lower bands. Watch your investments closely to make sure they are progressing as expected. If not, GET OUT. Look for price predictability in the shape of the price chart. Do you have rapidly changing prices that are erratic in nature or are they gently flowing curves. I look for gently flowing curves myself. Put a 3 day moving average on price and look for such curves. Very predictable. Anything outside the 3 day moving average is just noise. Good luck.
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