Day Trading With the Stochastic Indicator

http://www.ForexAutopilotRobot.com - Day Trading With the Stochastic Indicator - Momentum. If you look at the way I trade, you will find momentum is the key difference in my trading style and the chart traders or the pure oscillator traders, and the stochastic indicator is an accurate momentum indicator. I would not put the indicator in a class of oscillator that is sufficient to day trade as a single indicator system. It is a wonderful indicator to have in your day trading arsenal to confirm trades and glean information, which is exactly how I use the indicator.

In a pure sense, the stochastic indicator is a classic momentum indicator. The mathematical formula for the Stochastic indicator is as follows:

%K = 100[(C - L14)/(H14 - L14)]

L14 = the low of the 14 previous trading sessions
%D = 3-period moving average of %K
C = the most recent closing price
H14 = the highest price traded during the same 14-day period.

Even a cursory review of the formula leads us to the conclusion that the indicator is comparing the current price and the high and lows, the range, throughout a 14 day period. It should be noted that a day trader can set the length of time for the indicator, and a setting of 14 periods is very common. I have experimented with several different numbers, with mixed success. The charting period I trade in is 3 minutes on the ES emini, but it could be hours, day or months. As an emini scalper, I trade the shortest term trend in the market, but this indicator is often used for longer term trading. It is a versatile trading indicator and can be adapted for a several different trading periods, if necessary.

Most traders will recognize the stochastic indicator configuration on the chart, as it uses the traditional crossing line format. When the two lines cross (called %D and %K) a trade is indicated. Long crosses and short crosses are determined by which line is topping the oscillator. If the short line, usually a red line on most charts, crosses thru the long lines, which is usually blue, it indicates a ...


Day Trading With Stochastic Indicator

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[felson99]

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