Slow
Stochastic
Explained
It is now possible to understand and master the
slow stochastic indicator like George Lane.
bullish and bearish divergences in a normal financial market
environment. When the price-action is distorted due vertical
price movements or high volatility and market manipulations,
one should disregard those slow stochastic divergences. Note
that there are three types of stochastic indicator:
full stochastic indicator, fast stochastic and the slow stochastic
indicator. The power of the stochastic trading
is about trading the slow stochastic indicator (double smoothed
stochastic).
I only use the slow stochastic, and my favourite
stochastic setting is (8,3,3). You may call me Mr stochastic. Though,
I am not related to George Lane, we do share the same first name,
but also the passion for the slow stochastic trading. The ultimate
role of the slow stochastic oscillator is to reveal true bullish or
bearish divergences in the
financial markets. One should not use either the fast or full
therefore frequent slow stochastic divergences alert market
but the most popular patterns are double bottom and top chart
patterns. Apart from those patterns there are also thirteen specific
stochastic patterns. Indeed, the slow stochastic patterns allow day
or high frequency traders often misuse the slow stochastic indicator.
However, oversold means support, and overbought points to a
resistance. Note that a resistance does not always mean a guaranteed
during trending phases. Usually, one will buy or sell at the start of a
mini directional cycle after a short contra-trend. Those contra-trend
short pauses usually end with a low trading volume (no demand).
Consequently, due to a new surge in the trading activities at the start
of the subsequent directional price-action, the trading volume increases
strategies with the three market patterns without neglecting the
breakout or breakdown high probability trade set-ups. Generally, when
the slow stochastic reaches the overbought level for the first time it
signifies that the price is at a resistance. However, when that resistance
turns into a support, the slow stochastic stays overbought for a long
time as the price continues to break new resistance levels. Evidently,
the slow stochastic indicator is overbought during a bullish breakout,
scan for stocks that exhibit overbought slow stochastic trading signals
stochastic level as a screening criteria to isolate best breakdown trade
set-ups.
Remember that there are three types of stochastic, but the most powerful
one is the slow stochastic indicator. Its ultimate role is to expose bullish
and bearish divergences. Note that the slow stochastic divergences are
warnings, one should never
rush to buy or sell a financial instrument just because of those warnings.
One will only acknowledge them, but will keep eyes wide open on the
price-action (number one technical indicator) until there is a clear cut
confirmation. To avoid divergence trading mistakes, one must learn
how to filter out false divergences and implement a valid top-down
trading method to control the risk of trading the slow stochastic divergences.