STOCHASTICS

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STOCHASTICS

• Interpreted by Nathan Mosakowski

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Stochastic Oscillator

• Definition designating a process having an
• infinite progression of
  jointly
• distributed random
  variables.
• A Stochastic chart compares where a
• securitys price closed relative to its price
• range over a given time period .

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Basic Idea

• The premise behind the stochastic indicator is
  that when a stock is rising, it tends to close
  near the high while a falling stock closes near
  its low and is plotted as two lines, the fast
  and slow stochastic.

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• There are two popular methods to interpret
  stochastics.
• Buy when the oscillator falls below 20 and sell
  above 80
• Buy when the fast line crosses the slow from
  underneath
• Sell when the fast line crosses the slow
  from the topside

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D Line

• D Line represents the stocks moving average
  over a 3 day period and is the slow stochastic
  line.
• D 100 (C L3) / (H3 L3)
• C most recent close
• L3 the lowest price in 3 days
• H3 the highest price in 3 days

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K Line

• K Line represents the stocks moving
• average over a 5 day period and is referred
• to a a fast stochastic
• K Line 100 (C L5) / (H5-L5)
• C most recent close
• L5 the lowest price in 5 days
• H5 the highest price in 5 days

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• You should also look for divergences in the
  fast and slow lines.
• Look at the period from October to November.
  The gap being
• wider in the second rally indicates a chance
  for a new high.
• The larger gap in the stochastic lines then
  quickly closed after an
• approximate 15 point breakthrough to a new
  high of 150

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Any Questions?