what does stochastic oscillator lines crossing really mean? | Forex Factory

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what does stochastic oscillator lines crossing really mean?

  • #1
  • First Post: Jun 7, 2017 11:58am Jun 7, 2017 11:58am
Hi,
For those of you who use the stochastic oscillator for trading, I had a question about the stochastic oscillator.

I understand that %K is the current price in relation to the past range of N periods, and %D is the average of the past N %K values.

When the %K line and %D line crossover, this is regarded as a "signal". I am wondering, what does stochastic %K and %D lines crossing really mean and why should this be regarded as a signal?

In a literal sense, the %K line crossing over the %D line means the current price is moving above or below it's average. But so what? Is there any deeper significance to the current value moving above or below it's average of the past number of periods?

Also, stochastic is regarded as a "momentum" indicator, but not really understanding how it gauges momentum from a mathematical perspective.

If anyone could offer their insight that would be great. Thanks!
  • #2
  • Jun 7, 2017 11:47pm Jun 7, 2017 11:47pm
Quoting oyasumi
Hi, For those of you who use the stochastic oscillator for trading, I had a question about the stochastic oscillator. I understand that %K is the current price in relation to the past range of N periods, and %D is the average of the past N %K values. When the %K line and %D line crossover, this is regarded as a "signal". I am wondering, what does stochastic %K and %D lines crossing really mean and why should this be regarded as a signal? In a literal sense, the %K line crossing over the %D line means the current price is moving above or below it's...



http://www.investopedia.com/terms/s/...oscillator.asp

I don't use stochastic...
  • #3
  • Jun 9, 2017 11:56pm Jun 9, 2017 11:56pm
1. %K is going to mirror the corresponding moving average. A 50 line cross mirrors price crossing the corresponding moving average.
2. The Slowing value will adjust the %K in an effort to smooth the corresponding moving average crossover to attempt to avoid head fakes. The lower the Slowing value, the more closely a 50 line cross of the Stochastics will align to the crossover of price against the corresponding moving average. The larger the value, the later the signal.
3. The typical levels of 20 and 80 act as a pseudo support/resistance line of price against the corresponding moving average, or ... %K.
4. The %D is merely a trend line to help you gauge the direction of travel of the %K line. It can be used as a signal if you develop it to be, but you will most likely find using the same number, or half of the number, or twice the number, (all depends on your personality) of %K will yield smoother trades. Or make it tight and whipsaw yourself to death. Up to you.

As with any indicator, you must first establish what moving average you want to extrapolate. Then you use the indicator to help see the apex of price as it moves away from that moving average and starts to return to it. The Stochastics is not a good indicator for depicting that picture because it has a tendency to run out of range, depending on the moving average you are tracking. This means it will lay flat on the top or bottom because it can no longer follow price as it moves away from the moving average, %K.

The purpose of any oscillating indicator is to track the movement of price away from the corresponding moving average, then dissect the signal to try to find the apex of the movement. I am not sure most people are aware of this purpose, so they dismiss these types of indicators and say stupid things like they do not work, or they lag. Comments like that instantly define you as ignorant of oscillating indicators and graphing tools.

I would not bother with Stochastics because it is unreliable due to its lack of range of motion to cover the breadth of price movement.
You cannot be extraordinary by being normal
  • #4
  • Jun 10, 2017 12:53am Jun 10, 2017 12:53am
Stoch.... = loss
stoch.... = big loss if you are newbie
stoch.... = margin call if you depend on it alone without real good strong filer.
Stoch.... = you must know divergence
stoch.... = = you must know so many tricks when using this ugly indicator
stoch.... = yes it is fantastic indicator if you have funds more than usd50,000 in your account
stoch.... = i love it but i ave stopped using it

stoch.... = you must understand that most of paid indi in market are built on stoch so do not let them to fool you by fancy colors

stoch.... = it is just simply depending on the lord of the indicators.... The average ......

Stoch.... = many false signals..........i like it when it says sell and the price will go up after this signal by 400 points or more and vice versa is correect

do not trade using only stoch.......
GUYS BE AWARE FROM HUNTING YOUR STOP LOSSES BY YOUR BROKER & BY "GHOSTS"
  • #5
  • Dec 14, 2017 1:45am Dec 14, 2017 1:45am
Quoting dkrock
1. %K is going to mirror the corresponding moving average. A 50 line cross mirrors price crossing the corresponding moving average. 2. The Slowing value will adjust the %K in an effort to smooth the corresponding moving average crossover to attempt to avoid head fakes. The lower the Slowing value, the more closely a 50 line cross of the Stochastics will align to the crossover of price against the corresponding moving average. The larger the value, the later the signal. 3. The typical levels of 20 and 80 act as a pseudo support/resistance line of...
Thanks for the thorough explanation. Any you would recommend instead of the stochastic?
  • #6
  • Dec 14, 2017 3:29am Dec 14, 2017 3:29am
Quoting oyasumi
{quote} Thanks for the thorough explanation. Any you would recommend instead of the stochastic?
I prefer CCI and RSI type oscillating indicators because they can follow price better than Stochastic and MACD. Depending on your settings, they can show divergence, but they are reliable to turn their level lines into probability, ie, act as a Bollinger band upper/lower control limit, so it counters divergence signals. When choosing, customized is normally much better than the mt4 standard versions because they often have filtering or slowing which helps alleviate head fakes. There are many options to choose. Good Luck.
You cannot be extraordinary by being normal
  • #7
  • Dec 14, 2017 4:50am Dec 14, 2017 4:50am
Hello, Oyasumi
when stochastic's two lines moves in same direction that mean the current momentum coincides with momentum for a past time period therefore momentum is high. The slower line (average for a past period) is using like confirmation about momentum direction. And when this two lines are crossed that mean the direction of momentum changing. But does not mean every time price will move enough in new direction to make profit.
  • #8
  • Dec 14, 2017 6:24am Dec 14, 2017 6:24am
Quoting oyasumi
Hi, For those of you who use the stochastic oscillator for trading, I had a question about the stochastic oscillator. I understand that %K is the current price in relation to the past range of N periods, and %D is the average of the past N %K values. When the %K line and %D line crossover, this is regarded as a "signal". I am wondering, what does stochastic %K and %D lines crossing really mean and why should this be regarded as a signal? In a literal sense, the %K line crossing over the %D line means the current price is moving above or below it's...
Old video but good and as Thomas Long says.
I like it

Inserted Video
POW!
  • #9
  • Dec 14, 2017 6:29am Dec 14, 2017 6:29am
those parameter are using in the engineering

i am still remember learning the statistic during my college..

i dont know how to apply on trading
  • #10
  • Mar 30, 2018 11:01pm Mar 30, 2018 11:01pm
Quoting dkrock
{quote} I prefer CCI and RSI type oscillating indicators because they can follow price better than Stochastic and MACD. Depending on your settings, they can show divergence, but they are reliable to turn their level lines into probability, ie, act as a Bollinger band upper/lower control limit, so it counters divergence signals. When choosing, customized is normally much better than the mt4 standard versions because they often have filtering or slowing which helps alleviate head fakes. There are many options to choose. Good Luck.
Hey DKrock

Could you attach your favorite RSI and CCI indicators and possibly a brief explanation of why you like them. I use a 14 SMA and would be interested in testing them with Semafor
Listen more than you speak and be constructive
  • #11
  • Mar 31, 2018 3:54pm Mar 31, 2018 3:54pm
I'm in the belief that the stochastics indicator is unbiased in its output value, only that every user that views these outputs puts their subjective interpretation on what it means. In a nutshell, the stochastics measure the close in relation to the highest and lowest price in the last -User Inputted- periods. There's another indicator that shows exactly that -- the Donchian Channel. The %D is just a user selected period moving average of the close. So however you want to interpret that, if its in the upper 70-100 range meaning it possesses upwards momentum, or if it crosses down from 70 meaning the start of a downward swing leg, is up to you.

I personally don't believe that the markets can have actual, physical momentum, rather, any projected or observed momentum is due to psychology and the willingness of traders to submit market orders.
  • #12
  • Apr 1, 2018 6:38pm Apr 1, 2018 6:38pm
Quoting dkrock
{quote} I had to smile and reply after your last sentence, lol. Yes, you only can make money if someone else is willing to pay more than you did. That is the definition of a market, lol. Good belief.
Not entirely, as I don't believe I've touched on or commented about the myriad of ways to make a profit in the market, or even what a market is. I'm just stating that the term momentum is loosely thrown around, and sometimes even mixed-up with the actual scientific definition. Do you disagree?
  • #13
  • Apr 1, 2018 8:19pm Apr 1, 2018 8:19pm
J-Fucking-C!

I've never seen 2 people with so much to say, without saying anything, as I have the pair of you fuckstains.

Most impressively...

Neither of you seemingly are successful...

Get a room already...

With the way you talk, both of you would be fantastic in a political arena...FX...Maybe...who knows at this point.
Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
  • #14
  • Apr 1, 2018 8:37pm Apr 1, 2018 8:37pm
Quoting Magix
J-Fucking-C! I've never seen 2 people with so much to say, without saying anything, as I have the pair of you fuckstains. Most impressively... Neither of you seemingly are successful... Get a room already... With the way you talk, both of you would be fantastic in a political arena...FX...Maybe...who knows at this point.
And what is it that your eyes would like to read, Sir? I've promptly answered my view on OP's question, which is, well, the reason for the existence of interaction on a forum. Would you like me to divulge some crazy spectacular way to use the stochastics that nobody knows of? Well sadly, I know of none such method either. Between you and I, I believe my post here contributed my point of view pertaining to OP's question, and you... would you like to add something about the stochastics crossings rather than ridiculing interaction?


@dkrock
I agree, I do, however I must bring to point the crux of my point-- which is that momentum, because in forex does not have a universal meaning like it does in, for example, Physics, makes it subjective to the interpreter. My personal definition is a prolonged willingness for buyers to hit the ask, with an underlying reason for wanting to enter the market. This, in turn, assuming that there is no large latent sell limit orders, would result in continued rise in price until either the buying subsides, a large sell limit is reached, or a reason for sell orders to start hitting the bid. <-- so I was never arguing that there is no such thing as a subjective momentum, I'm saying there is no actual, universally agreed upon "momentum" like in the sciences.
  • #15
  • Apr 1, 2018 8:50pm Apr 1, 2018 8:50pm
Quoting Branflakes
{quote} And what is it that your eyes would like to read, Sir? I've promptly answered my view on OP's question, which is, well, the reason for the existence of interaction on a forum. Would you like me to divulge some crazy spectacular way to use the stochastics that nobody knows of? Well sadly, I know of none such method either. Between you and I, I believe my post here contributed my point of view pertaining to OP's question, and you... would you like to add something about the stochastics crossings rather than ridiculing interaction? @dkrock...

Not really...

The fact that you've chosen to weigh in on something you have clearly no idea about, is amusing.

Defending yourself on these points, well, let's just say, If I was you, would be embarrassed.

Why not stick to ideas you might know about...
Like making Grilled Cheese sammiches...or
Living in a modular home...

Your theories are clearly bullshit...and are backed by thin air.

I'd laugh at you, but in all honesty, I kind of feel sorry for you...and your mom's couch!
Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
  • #16
  • Apr 1, 2018 9:39pm Apr 1, 2018 9:39pm
Quoting Magix
{quote} Not really... The fact that you've chosen to weigh in on something you have clearly no idea about, is amusing. Defending yourself on these points, well, let's just say, If I was you, would be embarrassed. Why not stick to ideas you might know about... Like making Grilled Cheese sammiches...or Living in a modular home... Your theories are clearly bullshit...and are backed by thin air. I'd laugh at you, but in all honesty, I kind of feel sorry for you...and your mom's couch!
Oh wow, rude! Would you like to be mature and point out something you clearly disagree about, then state your reason, rather than stroll around sounding like you woke up on the wrong side of the bed?

Geez, to think that any worthwhile conversation could be had without someone being offensive for no apparent reason, other than to state that they disagree.
  • #17
  • Apr 1, 2018 9:56pm Apr 1, 2018 9:56pm
Quoting Branflakes
{quote} Oh wow, rude! Would you like to be mature and point out something you clearly disagree about, then state your reason, rather than stroll around sounding like you woke up on the wrong side of the bed? Geez, to think that any worthwhile conversation could be had without someone being offensive for no apparent reason, other than to state that they disagree.

Clearly to imply that your bullshit logic isn't offensive, so clearly nobody should take their own standpoint, that may offend you?

Facts above feelings, sunshine.

You own feelings...ya got anything on facts?
Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
  • #18
  • Edited 10:37pm Apr 1, 2018 10:19pm | Edited 10:37pm
Quoting Magix
{quote} Clearly to imply that your bullshit logic isn't offensive, so clearly nobody should take their own standpoint, that may offend you? Facts above feelings, sunshine. You own feelings...ya got anything on facts?
Damn, Magix, you're really into it!

Okay, let's see. You disagree with me on my definition of momentum. Let's start there.

In physics, there's a universally agreed upon formula for momentum. Is there in forex? forexfactory? Hmm... I can't seem to find one! Damn, Magix, I thought you knew that!

Let's start the prooooof by contradiction! You assume that there is indeed a universally agreed upon formula/method for measuring momentum. Oh wait, how is that possible, when there are so many threads that advise one use moving averages/stochastics/price action/their own black box indicator?

Is it allowed to proclaim one day that potential energy is now momentum? No, you'd be laughed at.
So damn, there really must not be a universal definition/formula for momentum in forex.

Now you ask for facts. Facts about what? That my first post said that stochastics was the position of the current close in relation to a user-defined lookback period? Seems like the textbook definition.

About my reasoning about what causes perceived momentum? The market goes up because of two reasons. Compelling surge in aggressive buyers, or lack of sellers. I think you're smart enough to know that. If the buyers and sellers are latent limit orders, and there is no ACTIVE buyers hitting the ask, then price will not go up. Not even if the limit buys outnumber the limit sells. It requires market orders to transact at the ask to attempt to take out the best ask, assuming they dont get pulled. Do you disagree with that? Do I need facts to convince you of the obvious?

Now are you going to tell me the market moves up because a 20SMA crossed a 50 SMA and that somehow triggered a large influx of aggressive buyers?
  • #19
  • Apr 1, 2018 10:35pm Apr 1, 2018 10:35pm
Quoting Branflakes
{quote} Damn, Magix, you're really into it! Okay, let's see. You disagree with me on my definition of momentum. Let's start there. In physics, there's a universally agreed upon formula for momentum. Is there in forex? forexfactory? Hmm... I can't seem to find one! Damn, Magix, I thought you were capable of logic! Let's start the prooooof by contradiction! You assume that there is indeed a universally agreed upon formula/method for measuring momentum. Oh wait, how is that possible, when there are so many threads that advise one use moving averages/stochastics/price...
Come with me if you want to live....
  • #20
  • Apr 2, 2018 12:37am Apr 2, 2018 12:37am
Quoting Branflakes
{quote} Damn, Magix, you're really into it! Okay, let's see. You disagree with me on my definition of momentum. Let's start there. In physics, there's a universally agreed upon formula for momentum. Is there in forex? forexfactory? Hmm... I can't seem to find one! Damn, Magix, I thought you knew that! Let's start the prooooof by contradiction! You assume that there is indeed a universally agreed upon formula/method for measuring momentum. Oh wait, how is that possible, when there are so many threads that advise one use moving averages/stochastics/price...

lol

See what I mean about joining a political arena...

You've built 4 straw men to try to make your arguement...still never proving that you know your ass from a hole in the ground.

Awesome job, loser.
Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
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