Stochastic Indicator Crossover Explained: %K and %D Lines -- with David Moadel
welcome to looking at the markets with David Modell I want to talk about
stochastics the K and the D what does that even mean it's not that complicated
it's pretty simple this will be a quick video for you I'm on stockcharts.com I
want to give them credit and I've got the daily candlestick chart and I'm
gonna talk about swing trading today but you can apply this to day trading as
well just use a shorter time frame for example the one-minute candlesticks or
the 2 minute or 5 minute or whatever you like alright but we'll just use the
daily candlestick chart for Intel here as you can see Intel has not been doing
too well over the last few months it's on a downtrend with lower highs lower
lows and yet you still could have profited over and over by using the
stochastic crossover here crossover between the K line and the D line well
what does that mean well the K line that's the black line here at least on
stockcharts.com and the D line is the red line there okay and so the K line
the black line that's the stochastic line and there's a formula for that but
we don't need to get into all of that what you need to know is that the K line
moves faster as you can see and the D line the red line moves slower which
makes sense that it moves slower because it's a three period simple moving
average of the K line yeah the red line is the three day SMA simple moving
average of the black line that's all it is
that's why you have the three there okay it's a three day simple moving average
of the K line and the K line has a 14 day or fourteen period look-back period
there alright but you can change that number and you can change this number as
well you can change the the D line the look-back period for the moving average
of the K line okay but I put it on the standard settings fourteen and three and
that can be found on stockcharts.com you just go down to end
Gators and you put on slow stochastics there's also a fast stochastics we'll
talk about that momentarily but the standard settings the default settings
are 14 for the you know look-back period for the K and then the 3 period
look-back period for the D alright so let's go back to the chart here and the
stochastic indicator and how to use the K and the D the black and the red here
well a lot of people use the crossover so it's your typical thing where when
the faster-moving line is below and then breaks clearly breaks above the
slower-moving line that's bullish and then when the faster-moving line clearly
breaks below the slower-moving line that's a possible bearish situation okay
so in other words when the black line is below and then clearly crosses above the
red line when the Kaila when the K is below and then clearly breaks above the
D line that could be a buy signal could be a bullish signal and then when the
when it crosses back below when the K crosses back below the D line that could
be a time to sell because now the trend is turning bearish according to the
crossover theory for the stochastic lines here the K and the D now some
people also say that if you want confirmation
don't buy until not only until the K crosses a you know is below and then
clearly breaks above the D line but also wait until it also crosses above the mid
line the 50 line here okay this is the 50 line where 20 is supposed to be under
20 is supposed to be oversold over 20 is supposed to be overbought 50 is
somewhere in between but some people want confirmation and so they wait for
the K to clearly break above the D after it's been below it and wait until the K
crosses above the 50 the mid line there and then you can get into it the problem
with that is that by the time it crosses above the 50 you can see that most of
the up move has already taken place and it's a little bit exhausted sometimes so
I don't know if I would recommend that but some people do all right but if you
had bought when the faster line clearly crossed above the slower line the K
above the D right about there you would have gotten in here and you could have
enjoyed a nice little ride up even in an overall downtrend not that I recommend
buying when the Trent when the overall long-term trend is down not saying that
you should do that but even in the worst of circumstances you could have still
profited here you could have gotten in here and then sold here okay so you
would have enjoyed a little run-up from here to about here okay and then again
okay you would have enjoyed a little run up here and then here and you would have
gotten in here sold there so there's another run up here you have gotten
involved in a lot of these small little little run ups they're not too bad
another one here you would have gotten in right about there right after this
big red candle and then you wouldn't have sold until about let's say here so
you would have enjoyed a run up from here to here you actually would have
done all right even in in this stock that's going down overall and that's
pretty good you could have done even better I imagine if the stock had been
on a general uptrend because then these run ups would have probably lasted
longer alright so there you go that's the K line the D line and a possible
strategy with possible confirmation as well if you want to wait until it
crosses also above the mid line the 50 line although once again by the time
that happens most of the run-up may have already occurred so be careful with all
these strategies make your own decision don't do something because anybody else
is doing it do it because you want to do it if you liked this video please give
it a thumbs up on YouTube and leave a comment do you like this strategy do you
believe in it have you used it or do you like some other strategy better tell us
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and I also coach people so you can email me anytime if you want more help my
email address is David Modell at GM I'll calm thanks a lot I really
appreciate it I'll talk to you again soon