Stochastic Oscillator [Stoch]

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The Stochastic Oscillator function calculates the difference between the current closing price of a security and its lowest low price, relative to its highest high price for a given period of time. Parameters ------------------ Close           The closing price of the security for each given day. High            The high price of the security for each given day. Low             The low price of the security for each given day. %K Period   The number of bars of data to include in the calculation, including the current value.                     For example, a period of 3 includes the current value and the two previous values. %K Slowing The number of recent calculations to average together for additional smoothing.                     A slowing period of 1 is a "fast" stochastic, a slowing period of 3 is a "slow" stochastic. Note that while this function is intended for use with these specific values, any values can be used for these parameters, including other price values and averaged prices. Special Note About Stochastic Parameters ------------------------------------------------------------------- The value of the stochastic oscillator is called its %K line. The moving average of this value is called its %D line. Since the stochastic (%K) is often compared to its moving average (%D), some programs include parameters for calculating the %D as part of the stochastic. However, since these are technically two seperate fields, their functionality is left seperate in TradingSolutions. To calculate one or more %D lines, simply create additional fields with moving averages of the stochastic oscillator using any of the Moving Average functions. Indicator Value ------------------------ The Stochastic Oscillator is calculated by subtracting the lowest low price of a security over the given period from its closing price. This value is then divided by the difference between the highest high price and the lowest low price over the same period. Finally, the value is traditionally multiplied by 100 for ease of charting. The resultant value is a percent rating for the closing price, relative to the trading range between its recent highest and lowest prices. A value of zero indicates it closed at its lowest recent low. A value of 100 indicates it closed at its highest recent high. The value is often smoothed using a "slowing" period. A slowing period of 1 uses the raw calculation, while a slowing period of 3 averages the value for the last three days. The value at the beginning of a data series is not defined until there are enough values to fill the %K Period. If a %K Slowing is used, additional data will be required to fill the slowing period. The Stochastic Oscillator is very similar to the Williams' %R indicator, except that where the information in the Williams' %R relates the closing price to the highest high, the Stochastic Oscillator relates the closing price to the lowest low. Also, the Williams' %R does not contain any internal smoothing (slowing). Usage ----------- The Stochastic Oscillator (the %K line)  is typically used to determine when price trends will reverse. It is often compared to a moving average of its value, known as the %D line. When it crosses above its moving average, an enter long signal could be generated. When it crosses below its moving average, an enter short signal could be generated. See the sample entry/exit systems for an example of this method. Another way to use the %K line or the %D line is to establish thresholds and trade when the line crosses those thresholds. For example, an enter long signal could be generated when the %K line falls below 20 and an enter short signal could be generated when the %K line rises above 80.  See the sample entry/exit systems for examples of this method. In addition, divergences between the Stochastic Oscillator and the price can be examined. If prices are rising and making new highs, but the oscillator is not making new highs, a price correction may occur in the near future. Source ------------ This indicator is based on an entry in "Technical Analysis From A To Z" by Steven B. Achelis.