Cstats (Stochastic)
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Description
George C Lane developed stochastics to be a price-velocity indicator. It compares the difference between the latest closing price and the low for a term with the price range for the term. You specify the term.
Lane's interpretation is complicated. He recommends smoothing twice with simple three-term moving averages. Divergence between the price trend and the singly smoothed stochastic would signal a trend reversal. This would be confirmed when the singly and doubly smoothed stochastics crossed provided that the doubly smoothed stochastic has already turned in the direction of the new trend when signals are in the direction of the major trend when the bullish signals are in the 10% to 15% range and bearish signals are in the 85% to 90% range.
Colby and Meyers recommend a simpler interpretation. They suggest using an unsmoothed stochastic (term = 1.) A bullish signal would occur when the stochastic rises above 50%, providing that the stochastic and closing prices are above their previous week's levels. Bearishness is signalled when the stochastic sinks below 50% and the stochastic and closing prices are below their previous week's levels. They suggest an optimal term of 39 weeks. However, this was determined using historical data from the US markets. You would be well advised to experiment with local data before employing this technique.
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