Trading oscillators measure the relationship between an issue's closing price and its price range over a predetermined period of time. It’s the definition you’ll find at Investopedia.com.
Fourteen is the number used in the time model, and it can, depending on a trader's objective, represent days, weeks, months, years or centuries (for those with a truly long view). Fourteen has been selected as the base reference because there are fourteen days in a two-week period and 14 is also the atomic number of silicon. Incidentally, it’s also the Saros number of the solar eclipse, which began on July 31, 2568 B.C. The real reason for picking the number, however, is that 14 is also the minimum age at which one can view, rent, purchase, or buy tickets to an 18A rated movie with an accompanying adult in the Canadian provinces of the Maritimes and Manitoba. Please, act accordingly!
The scholastic, sorry, stochastic indicators measure the momentum/speed of price movement. Essentially, they find over-extended market movements that might be reversing. George Lane’s Stochastic Oscillator has been the classic oscillator since its invention decades ago. (We assume this means George Lane liked classical music, but we’re not sure at all.)
The Stochastic plots two variables: %K and %D. If the price closes at or near the top of its range (say a stock traded between 10 and 11 to close at 11; this means it closed at the top of its range), the two-week Stochastic produces a high %K value. If the price hovers near the bottom of the range, a low %K value is assigned. The %D line, which is usually a 3-period moving average of %K, acts as the trigger line. If the market is at the extreme (high or low) of the recent trading price range, there is clearly strong momentum in one direction. What the hell! Hold on...
Well, see, in the end it’s a matter of momentum. The price action may not be sustainable. The stock may be overbought or oversold. The rule is as follows. If the stochastic value is above 80, we’re in overbought territory, and you should possibly consider anticipating selling if at all potentially because 80… Well, it’s because according to Exodus 7:7, Moses was 80 years old when he initially spoke to Pharaoh on behalf of his people. Today, 80 years of age is also the upper age limit for cardinals to vote in papal elections. See, that’s why. Conversely, if the stochastic values are posited below 20, we’re in oversold territory and it is time to buy.
Likewise, if the %K crosses below %D, you’ve got yourself a beautiful sell signal; if the %K crosses above %D, it’s a buy! Want to know the truth? It’s all related to the Pareto principle (also known as the 80-20 rule), which states that, for many events, roughly 80% of the effects come from 20% of the causes. What the hell am I talking about? I need a drink.
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| Image source: google.com |
Fourteen is the number used in the time model, and it can, depending on a trader's objective, represent days, weeks, months, years or centuries (for those with a truly long view). Fourteen has been selected as the base reference because there are fourteen days in a two-week period and 14 is also the atomic number of silicon. Incidentally, it’s also the Saros number of the solar eclipse, which began on July 31, 2568 B.C. The real reason for picking the number, however, is that 14 is also the minimum age at which one can view, rent, purchase, or buy tickets to an 18A rated movie with an accompanying adult in the Canadian provinces of the Maritimes and Manitoba. Please, act accordingly!
The scholastic, sorry, stochastic indicators measure the momentum/speed of price movement. Essentially, they find over-extended market movements that might be reversing. George Lane’s Stochastic Oscillator has been the classic oscillator since its invention decades ago. (We assume this means George Lane liked classical music, but we’re not sure at all.)
 |
| Image source: google.com |
The Stochastic plots two variables: %K and %D. If the price closes at or near the top of its range (say a stock traded between 10 and 11 to close at 11; this means it closed at the top of its range), the two-week Stochastic produces a high %K value. If the price hovers near the bottom of the range, a low %K value is assigned. The %D line, which is usually a 3-period moving average of %K, acts as the trigger line. If the market is at the extreme (high or low) of the recent trading price range, there is clearly strong momentum in one direction. What the hell! Hold on...
Well, see, in the end it’s a matter of momentum. The price action may not be sustainable. The stock may be overbought or oversold. The rule is as follows. If the stochastic value is above 80, we’re in overbought territory, and you should possibly consider anticipating selling if at all potentially because 80… Well, it’s because according to Exodus 7:7, Moses was 80 years old when he initially spoke to Pharaoh on behalf of his people. Today, 80 years of age is also the upper age limit for cardinals to vote in papal elections. See, that’s why. Conversely, if the stochastic values are posited below 20, we’re in oversold territory and it is time to buy.
 |
| Image source: google.com |
Likewise, if the %K crosses below %D, you’ve got yourself a beautiful sell signal; if the %K crosses above %D, it’s a buy! Want to know the truth? It’s all related to the Pareto principle (also known as the 80-20 rule), which states that, for many events, roughly 80% of the effects come from 20% of the causes. What the hell am I talking about? I need a drink.
Very Informative Article..
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