With regards to a stochastic at zero, as low as it can go, it will not always guarantee a price move large enough to make money by going long at that time. I remember going long with Psi-Net (PSIX) around Jan 97. Stochastics were clearly oversold below 20 at the time. I got in long at $9.375. Over the next two weeks, PSIX went no higher than about $9.625, not enough to make a decent profit on, BUT the 14 day stochastics managed to get to 80 anyways and THEN the price started falling and it didn't stop until it hit the $6 area. The REASON for this?
The trend was down. This is what happens when you try to pick a bottom using 14 day stochastics. A better way to have played PSIX would have been to recognize the downtrend so you are limited only to shorting. If I had shorted at the 80 area at $9.50, I would have cleaned up, but no I had to fight the trend. I eventually sold PSIX months later at $9.125. Hugh waste of TIME that was easily avoidable.
I don't know of any online databases for stochastics. If you had Windows on Wall Street Pro, assuming you have a personal computer, you can do a scan of your own database for that. Here's exactly how I trade. Again, I only have a two week time horizon. I started with a database of all NYSE, NASDAQ and AMEX stocks that trade an average volume of greater than 750,000 shares a day. That's about 800 companies. That ensures proper/quick liquidity for trading and ensure I have intraday chart patterns to look at for predictability. Low volume stocks just look like step functions. Each nite I do a scan that looks for stocks in that group that have averaged 3% moves a day over the last 50 days. Very volatile group. I usually end up with about 130 companies at this point. I then run through charts of each manually. Takes about 45 minutes and I make notes on those that stand out with things like low or high stochastics. My plots include bollinger bands (12 day, 2 std dev) on 5 day stochastics, bollinger bands on price (12 day, 2 std dev) volume, and something I created called bollinger bands on bollinger band width. This last indicator tells me if the stock is about to make a big move or if its volatility will be decreasing as its price will be consolidating.
I would say you are starting about exactly where I did as I was fascinated by stochastics and RSI right at the beginning. You are definitely going down the correct track though by looking at technical indicators to supplement your fundamental analysis. I did the same thing. There's a lot of people out there that flat out ignore technical analysis because they THINK they have a long term view--until they start losing money. Even those with a long term view (6 months or longer) should trade using a 200 day moving average as their trend line and use a 200 period stochastic too, to get in cheap. Now that may take some patience. |
