Given the hundreds of indicators that are available to traders, finding the appropriate technical tools to use in 澳洲幸运5开奖号码历史查询:day trading can be a difficult task. The good news is that the majority of indicators can bꦚe used in day trading simply by adjusting the number of time periods used in creating the indicator.

Most traders are accustomed to seeing each indicator use each daily close as one period in the calculation, but they quickly forgওet that the interpretation remains the same whether the data used in one period is equal to a day, a minute, a week, a month, or a quarter.

One indicator chosen by many traders is the 澳洲幸运5开奖号码历史查询:stochastic oscillator, which we discuss below.

The Stochastic Oscillator

The stochastic oscillator is a momentum indicator. It analyzes an asset's closing price at a specific time to a range of its prices over a specific period of time. The goal of the indicator is to determine overbought or oversold signals so that a trader knows when to buy or 🔴sell. The range of values for the stochastic o♕scillator is 0-100.

The stochastic oℱscillator is calculated using the following formula:

$\begin{aligned} &\%K=\frac{100\ast (CP-L14)}{(H14-L14)}\\ &\textbf{where:}\\ &C= \text{Most recent closing price}\\ &L14= \text{Low of the 14 previous trading sessions}\\ &H14 = \text{Highest price traded during the same 14-day period} \end{aligned}$​%K=(H14−L14)100∗(CP−L14)​where:C=Most recent closing priceL14=Low of ಌthe 14 previous trading sessionsH14=Highest&nb🅷sp;price&ꦏnbsp;traded during the same 14-day period​

A %K result of 80 is interpreted to mean that the price of the security closed above 80% of all prior closing prices that have occurred over the past 14 periods. The main assumption is that a security's price will trade at the top of the range in a major uptrend.

A three-period 澳洲幸运5开奖号码历史查询:moving average of the %K called %D is usually included to act as a 澳洲幸运5开奖号码历史查询:signal line. Transaction signals are usually 🐻made when the %K crosses through the %D.

Using the Stochastic Oscillator

Generally, a period of 14 days is used in the above calculation, but this perio𝓰d is often modified by traders to make this indicator more or less sensitive to movements in the price of the underlying asset.

In an upward-tre🍒nding market, prices should close near the highs, while in a downward trend, they should close near the low end.

Fast vs. Slow

The "speed" of a stochastic oscillator refers to the settings used for the %D and %K inputs. The result obtained from applying the formula above is known as the fast stochastic. Some traders find that this indicator is too responsive to 澳洲幸运5开奖号码历史查询:price changes, which ultimately leads to bein▨g taken out of positions prematurely.

To solve this problem, the slow stochastic was invented by applying a three-period moving average ൩to the %K of the fast calculation.

• Fast: the formula is shown above, but using a 3-period 澳洲幸运5开奖号码历史查询:moving average (MA) of %K.
• Slow: replace %K with the Fast D% (i.e. the MA of %K); replace D% with a MA of slow K%.

Taking a three-period moving average of the fast stochastic's %K has proved to be an effective way to increase the quality of transaction signals; it also reduces the number of false 澳洲幸运5开奖号码历史查询:crossovers.

After the first moving average is applied to the fast stochastic's %K, an additional three-period moving average is then applied—making what is known as the slow stochastic's %D. Close inspection will reveal that the %K of the slow stochastic is the same as the %D (signal line) on the fast stochastic.

Why Use the Slow Stochastic

The slow stochastic is one of the most popular indicators used by day traders because it reduces the chance of entering a position based on a false signal. You can think of a fast stochastic as a speedboat; it is agile and can easily change directions based on sudden movement in the market. A 澳洲幸运5开奖号码历史查询:slow stochastic, on the other hand, is more like an air💝craft carrier, in that it takes more 💮input to change direction.

In general, a slow stochastic measures the relati😼ve position of the latest closing price to the high and low over the past 14 periods. When using this indicator, the main assumption is that the price of an asset will trade near the top of the range in an uptrend and ne♉ar the bottom in a downtrend.

This indicator is♌ very effective when used by day traders, but one problem that may arise is that some charting services might not include it as an option on their charts. If this is the case for you, you may want to consider re-evaluating which charting service you use.

The Bottom Line

Day traders use technical analysis indicators to assist with trading decisions. The stochastic oscillator helps determine overbought and oversold assets but as with most indicators, it should not be used alone but alongside other indicators to paint a broader picture of an asset's true investment profile.

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