Market timing techniques include overbought/oversold signals, bullish and bearish divergence, trend following indicators, major trend analysis and support/resistance level.
June 19, 2006 (Press Release) --
The stochastic oscillator was presented by George Lane in 1950s. George Lane designed a number of indicators that withstood the test of time. These indicators rank among most popular and widely used. Lanes stochastic oscillator can warn of strength or weakness in the market ahead. As a momentum indicator stochastic helps to find turning points within the scope of the more significant trend. To achieve better result, stochastic needs to be used in conjunction with trend analysis or trend following indicators.
The best technique is to use stochastic with trend analysis to time trades in the duration of the major trend. Stochastic indicates short-term price fluctuation within the major trend support and resistance level. Using these two techniques in conjunction gives a number of excellent opportunities.
The basic assumption behind the indicator is that in an upward trend price tend to close near the highs of the day. In downward trend price tend to close near their low. The stochastic oscillator is plotted as two lines, a fast line called %K, and a slow line %D.
%K = 100 * (C LN) / (HN LN)
%K fast stochastic
C latest close price
HN highest high for N periods
LN lowest low for N periods
%D - is an n periods simple moving average of %K
Usually n = 3 periods.
George Lane recommended a 14 period measurement. The number can be varied to change the sensitivity and desired time frame. Period can represent days, weeks or month.
Lanes stochastic is a percentage indicator. It always stays between 0 and 100.
Market technicians use stochastic oscillators as a timing indicator for signals of market reversal. There are three main signals the stochastic generates.
1. The level above 80% is considered as an overbought warning signal, and the level below 20% is used as oversold warning signal. This signal should be considered only in conjunction with other factors. Lane recommended waiting when stochastic rises above 80% and sell when it falls below this level. Similar for level below 20% it is recommended waiting for rise back above 20%.
The stochastic oscillator is very sensitive to the price movement and usually gives too many signals and to many whipsaws. One way to limit the sensitivity is using 5% and 95% level as more reliable. Some technicians prefer smoothing normal stochastic by 3-day simple moving average. The normal stochastic is sometimes referred as fast to distinguish it from smoothed slow stochastic. Some technicians believe that slow stochastic provides more accurate signals.
This technique is simple and elegant. Technical analysis software does all the calculations, and makes analysis easier and available not only for professional traders, but even for average investors. You can find the complete list of S&P 500 oversold and overbought stocks using the advanced technical analysis stock screener:
http://www.thegreedytrader.com/StochasticOversold.aspx
http://www.thegreedytrader.com/StochasticOverbought.aspx
The best technique is to use stochastic with trend analysis to time trades in the duration of the major trend. Stochastic indicates short-term price fluctuation within the major trend support and resistance level. Using these two techniques in conjunction gives a number of excellent opportunities.
The basic assumption behind the indicator is that in an upward trend price tend to close near the highs of the day. In downward trend price tend to close near their low. The stochastic oscillator is plotted as two lines, a fast line called %K, and a slow line %D.
%K = 100 * (C LN) / (HN LN)
%K fast stochastic
C latest close price
HN highest high for N periods
LN lowest low for N periods
%D - is an n periods simple moving average of %K
Usually n = 3 periods.
George Lane recommended a 14 period measurement. The number can be varied to change the sensitivity and desired time frame. Period can represent days, weeks or month.
Lanes stochastic is a percentage indicator. It always stays between 0 and 100.
Market technicians use stochastic oscillators as a timing indicator for signals of market reversal. There are three main signals the stochastic generates.
1. The level above 80% is considered as an overbought warning signal, and the level below 20% is used as oversold warning signal. This signal should be considered only in conjunction with other factors. Lane recommended waiting when stochastic rises above 80% and sell when it falls below this level. Similar for level below 20% it is recommended waiting for rise back above 20%.
The stochastic oscillator is very sensitive to the price movement and usually gives too many signals and to many whipsaws. One way to limit the sensitivity is using 5% and 95% level as more reliable. Some technicians prefer smoothing normal stochastic by 3-day simple moving average. The normal stochastic is sometimes referred as fast to distinguish it from smoothed slow stochastic. Some technicians believe that slow stochastic provides more accurate signals.
This technique is simple and elegant. Technical analysis software does all the calculations, and makes analysis easier and available not only for professional traders, but even for average investors. You can find the complete list of S&P 500 oversold and overbought stocks using the advanced technical analysis stock screener:
http://www.thegreedytrader.com/StochasticOversold.aspx
http://www.thegreedytrader.com/StochasticOverbought.aspx
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