Understanding the Stochastic Indicator

[klund]

Originally Posted by Neocat

Actually, Neocat is a she.

Well, sure, in a technical sense. However, metaphilophorically, all people have a common component which, when viewed apart from the physical constructs that rigidly define our terrestrial existence, reduces our differences to mere disturbances in the space time continuum.

In other words, sorry.

(damn pronouns)

Originally Posted by Neocat

I think Phil might mention getting out on one or two sell signals somewhere else (which I would do if my money were on the line), but on page 209, he says:

"When all three Tools are saying "buy", it's time to get in. When all three are saying "sell," it's time to get out. (Yes, wait for all three to give the signal.)"

Well, golly. I think part of the thing is that he has now made it more of an art then a science. On his blog he says this:

Originally Posted by Phil Town

And I get out when the stock stops going up and I get two reds down below.

Found here: http://philtown.typepad.com/phil_tow...the_arrow.html

In other words, one, two or three reds could be sell signals. Hopefully each of us will find a comfortable rule that works for our personal tastes and preferences.

Kevin

[klund]

Originally Posted by AlexG

your suppose to be in a stock when all 3 signals are green right? so how is it possible to be in a stock when 2 signals are green and one signal is red :shock:

Because you buy the stock when you get three greens. If one indicator switches to red, you don't need to sell at that point.

Kevin

[Vega$Chri$]

Originally Posted by Phil Town

And I get out when the stock stops going up and I get two reds down below.

Found here: http://philtown.typepad.com/phil_tow...the_arrow.html

Could it be that Phil's mention of "two reds down below" is in reference to the fact that on the Investools Charts (or Business Week Charts for us CHEAPO types) the Stochastic and the MACD are shown "below" the stock price/moving average lines?

If so, that would indicate that the two signals down below, when combined, provide a VERY strong signal, where as a red on the MA by itself, or combined with one of the "down below" indicators might not signal such a strong sell opportunity.

Any thoughts (other than to stop overanalyzing and trade some stocks already)???? :)

Chris

[Rocket Dawg]

Quick question:

Some sites have a space for 3 numbers in the Slow Stochastic. A %K, a slowing %K and a %D.

What numbers do you enter if there are 3 numbers?

Thanks!

Chuck

[Lois]

In Phil's Jan. 2006 posts on his web-site it states: A sideways price and two reds are my signal to bail out. It is under the post "Thank you God, for the Tools". Hope this helps.

[TheCrack]

Quick follow up question on the stochastic, with regards to the 80/20 marker lines:

My understanding was that when The stock crosses up over the buy line, its time to buy, and when the stock crossed down thru the buy line, its time to sell....

What Im not getting, is whether or not I should be reacting to every crossing of the lines, or should I only be reacting if things are crossing the 80/20 markers as well?

Thanks....

[mose]

Originally Posted by Rocket Dawg

What numbers do you enter if there are 3 numbers?

Phil says in his blog that if there are 3 numbers, the third number should be 0.

mose

[mose]

Originally Posted by TheCrack

My understanding was that when The stock crosses up over the buy line, its time to buy, and when the stock crossed down thru the buy line, its time to sell....

That is incorrect. There is no buy line. When the 8/17 MA line is above the 9-day MA, it is a signal to buy. When it is below, it is a signal to sell. Studies have shown that when the lines cross and move upward through 20%, they tend to continue upward. When the lines cross and head down through 80%, they tend to contine to downward.

mose

[TheCrack]

Mose,
Thanks for that excellent clarification....
I did mis speak by referring to the 8/17 and 9 lines as 'buy' lines, so I know what you mean there....
Before I read this post, I was checking out the charts at Businessweek Online, and they use markers at 25/75 as opposed to 20/80 for whatever reason, but I like the charts....

Let me ask you, for example:
Say that the stochastic shows the 8/17 line break thru above the 9 line, and were not near the 80/20 markers at all(lets assume were at 50).
The stock continues to rise, and 1 week later it breaks thru the 80 marker.

A few days later, the 8/17 line crosses down thru the 9 line, and also breaks down thru the 80 marker, and so I sell. That much, I understand....

My question is, when would you look to get back in again?
When the 8/17 crosses up thru the 9 at all, anywhere?

Or, do you only get back in if the 8/17 line crosses the 9 line at the same time its breaking up thru to 20 marker again?

I hope that made sense....

[TheCrack]

Justin,
GREAT post there, wish I readt it 3 months ago :)

One question if I may:
I understand now the 80/20 markers, and being overbought and oversold, but between the 80/20 markers, there are quite a few times when the red/blue lines cross, are you also getting in/out at those times, or only when things happen below the 20 marker or above to 80?

Thanks....