Stochastic Indicator Explained: Slow, Fast, & Full Stochastics. // Oscillator Strategy Tutorial Basics Trading david moadel
welcome to looking at the markets with David Modell today I wanted to discuss
stochastics the stochastic indicator also called this stochastic oscillator
call whatever you want I think it's pretty cool and I want to get in some
details you know what is the fast stochastic the slow of stochastic the
full stochastic if you like that one which one should you use which one do I
like so let's take a look alright I'm using stockcharts.com want
to give them credit for their charts and here is Apple the daily candlestick
chart and you can use the stochastics for not just the daily chart so you can
date rate it using the 5-minute candles or the two or one minute
or whatever you could use the weekly candles monthly for long term buy and
hold whatever you like I'm just going to use the daily candlestick chart of Apple
for this example alright so below it I put all three
stochastic indicators and on stockcharts.com it's easy to do you just
go down to indicators and put them on there the default parameters or settings
will be the 14 period so it looks back at the last 14 candlesticks so it's 14
and 3 so what does that mean okay well first let's look at the fast stochastics
you got the fast the slow and the full all right so the FASTA castex you see
that black line there it's really jagged really volatile kind of hard to follow
alright it's a fast mover there I would say the black line here it's not my
favorite one it doesn't mean you can't use it but I normally don't look at this
one first because it is so jagged and it moves so fast that's probably why they
call it the fast Acastus alright and so the black line is the 14 period look
back fast stochastic indicator and if you're wondering how they calculate that
you don't need to know it is the current clothes - the lowest low
/ the highest high - the lowest low times 100 in case you're curious about
where they get these stochastic indicator numbers from all right so now
case you don't know already I'll just give you a quick primer on that if it
goes below 20 which is this horizontal line here that means it's oversold what
a lot of people like to do is wait until it goes below the oversold line here at
20 and then when it pops up back above it that could be a buy signal alright
and then overbought or to expensive would be this horizontal top line here
and some people say that when it goes above 80 which is the top line here that
it's oversold and so some people like to wait until it goes above and then breaks
below the oversold line here or 80 and then they either sell their stock or or
whatever cryptocurrency currency commodity whatever it is and then they
either sell it or they might even short it okay so that's just one way to use it
but you have to make your own judgment of course as to what to buy and what to
sell so that's the fastest ik and I told you how they calculate it so what's this
red line well that is simply the three day simple moving average of the black
line this you see the three there okay that's it's a three day moving average
simple moving average of the fast stochastic here so it smoothes it out a
lot of people like the red line better than the black line and by the way since
there are two lines here you can use the crossovers as well for buy and sell
signals some people think it's well some people would say it's bullish all right
when the faster line the black line goes above it's moving average all right and
then some people would say it's bearish when it goes below it's moving average
when the black line goes below the red line
that's another interpretation of it all right so that's the fast stochastics
it's volatile and it may not be your favorite one but it certainly can be
used I tend to prefer these slow stew Plastics that's just my preference it
doesn't give you as many signals alright it's not going to drop below or above
the line you know the over sold and overbought liens is often but that way
you don't get chopped out with chopped up with Commission's you don't get as
many false signals it's just easier to read it's not as jagged not as volatile
all right now you notice that the black line here which is the slow stochastic
14 period once again notice that the black line here looks a lot like the red
line here ah because it's the same thing okay they just take the three day moving
average of the FASTA cast ik the red line and they put it down here for the
black line notice they're exactly the same the red line here and the black
line here so that's why it's the slow stochastic it's really just the moving
average of this one the FASTA cast ik and so it doesn't move as fast and then
they add a three day simple moving average of this line which is itself the
three day moving average of this line so this red line here is the three day
moving average of the three day moving average that's crazy right but it kind
of makes sense so what we have here is we can look at the black line the 14
period slow stochastic which is a three day moving average of the FASTA cast ik
alright and again you could use it in the same way you could either wait until
it goes below the 20 line here and then pops up back above it as a buy signal or
you can wait until it goes above the 80 line here and then goes back below as a
sell or short signal that's one possible way to use it you can use the crossovers
again when the faster one the black line goes above the slower one the red line
that could be a buy signal when it goes below the red line it could be a sell
signal multiple ways to use it alright so once again the red line here the
three day moving average of the black line here that's the black line is the
slow stochastic alright and then finally the full stochastics stockcharts.com has
it not every platform has it you notice it looks exactly like the slow
stochastics all it is really is just a more customizable one so for example on
the FASTA cast ik in addition to changing the look-back
period the 14 you can also change the moving average you can make it the three
day or you could change the three to five day eight day one day two day
whatever okay same with slows to slow stochastics you
can change the look-back period from fourteen to something else and you can
change the moving average look-back period from three to whatever alright
for the full stochastics you can change everything
so the 14-day look-back period you can change that you could change the three
which is like this three and you could change the other three which is like
this three alright so you can change all the look-back periods for the fourteen
day and then the three simple moving average and then the other three simple
moving average you can change them all you can customize it for me I tended C
to stick just with the slow ones on the standard settings that's the easiest way
but I like the fact that with this indicator no matter what platform you're
using you can change all the parameters or at least you should be able to you
can change all the settings from the default all right so that's a quick
rundown of the fast slow and full stochastics so I hope you found this
useful and helpful if you did please give this video a thumbs up on YouTube
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alright thanks a lot I really appreciate it and I'll talk to you again soon