Stochastic in Stock Chart

[jmakowsky]

I am new here and thought that I would start out by introducing myself. My name is Jon. I had been searching unsuccesfully for answers to a questions that is keeping me up at night. Upon talking with 'Andy' here, he thought that I might find my answers with someone willing to help. I have got hooked on fast stochastic equations as it relates to charting stocks. The majority of programs use the simple %K=100*(C-L)/(H-L). However there are a few that use a more complex version, it seems more smoothed out and I like using these more. I have all of the variables including the %K value, but cannot figure the formula. I would greatly appreciate any help. Thank you so much and I look forward to talking and getting to know you all more. Have a great day.

***I set the periods to 5 and the %K value on the most recent close =75.05

Open High Low Close

Most Recent Close Bar 9.82 10.15 9.71 10.14

MRCB + 1 9.78 9.87 9.54 9.59

MRCB +2 9.36 9.71 9.28 9.66

MRCB +3 9.06 9.39 9.04 9.34

MRCB +4 9.99 10.08 9.16 9.23

MRCB +5 (just in case) 9.51 9.77 8.96 9.46

 

[Andy Nguyen]

What you refer to is called stochastic oscillator (or stochastics), is an indicator that measures price momentum. Specifically, it measures the placement of a current price within a recent trading range on a scale from 0 to 100. Values above 75 (or 80) or below 25 (or 20) are potential market signals.

There are two lines plotted, called the "%K" and "%D." The former is also called the "raw stochastic" and the latter is simply a smoothed version.

The formula for %K is:
%K = (CLOSE-LOW(%K))/(HIGH(%K)-LOW(%K))*100

Where:
CLOSE — is today's closing price;
LOW(%K) — is the lowest low in %K periods;
HIGH(%K) — is the highest high in %K periods.

The %D moving average is calculated according to the formula:
%D = SMA(%K, N)

Where:
N — is the smoothing period;
SMA — is the Simple Moving Average.

Info above are from Stochastic Oscillator Technical Indicators, Technical Analysis

 

[jmakowsky]

Thank you Andy for getting back to me quickly. I have tried that formula, and in this instance it does not work. If you plug the values into that formula, you get a different answer then what the %k value of 75.05 is. Like I mentioned the majority use the simple formula, but I was hoping to be helped with solving the below calculations. Again, thank you for your help.

 

[Alejandro Canete]

Hi

Actually Stochastic oscillator measures momentum only under mean reversion assumption.

It is just a rescaled view of past price trajectory.

If you add an SMA in to the mix you are going to be adding lag to your signals.

If you are building a mean reversion system use Bollinger bands, if you are using a momentum trading one use RSI.

in fact stochastics gives no more info than rsi or bbands and less than just looking at price trayectory.

hope it helps.

What you refer to is called stochastic oscillator (or stochastics), is an indicator that measures price momentum. Specifically, it measures the placement of a current price within a recent trading range on a scale from 0 to 100. Values above 75 (or 80) or below 25 (or 20) are potential market signals.

There are two lines plotted, called the "%K" and "%D." The former is also called the "raw stochastic" and the latter is simply a smoothed version.

The formula for %K is:
%K = (CLOSE-LOW(%K))/(HIGH(%K)-LOW(%K))*100

Where:
CLOSE — is today's closing price;
LOW(%K) — is the lowest low in %K periods;
HIGH(%K) — is the highest high in %K periods.

The %D moving average is calculated according to the formula:
%D = SMA(%K, N)

Where:
N — is the smoothing period;
SMA — is the Simple Moving Average.

Info above are from Stochastic Oscillator Technical Indicators, Technical Analysis

 

[jmakowsky]

thank you acanete...I assume that when you plug the numbers in that it must be smoothed somehow. Can you help me with the calculation/formula to solve the below values. I would really appreciate it. Truth be told, math at these levels and discussion group are out of my range. Thanks again.

 

[Alejandro Canete]

The same exact formula that andy posted.


But you can add an extra filtering/smoothing/averaging method to the CLOSE.

Moving average - Wikipedia, the free encyclopedia
StockCharts.com - ChartSchool - Stochastic Oscillator (Fast, Slow, and Full)

thank you acanete...I assume that when you plug the numbers in that it must be smoothed somehow. Can you help me with the calculation/formula to solve the below values. I would really appreciate it. Truth be told, math at these levels and discussion group are out of my range. Thanks again.

 

[jmakowsky]

I looked at those sites before coming here and before thinking of asking for help. I tried and tried, but as I said, my math skills are not at par with everyone at this site. Did you get the answer from one of the formulas you provided? and if so, I would really appreciate knowing how to do it. I might not have much to offer in return, except for dry dumb humor...Thank you.

 

[doug reich]

Looking at your original post for probably the third time, I still don't know what you're giving us. Are those open/high/low/close numbers at the bottom? Is our goal to get the MRCB number you posted? Can you provide additional information?

 

[jmakowsky]

Thank you Doug,

Yes the values are the Open High Low Close of the candlesticks. With those values it equals a %K value (stochastic) of 75.05. I do not know the formula that is being used to get the value of %K. It is not the %K = (CLOSE-LOW(%K))/(HIGH(%K)-LOW(%K))*100 so there must be more to it. I am looking for that 'more'... Thanks again.