All language subtitles for 6. Stochastic Oscillator Momentum Trading

Another great indicator that you can use to really identify overbought and oversold positions is the

stochastic oscillator, which just has kind of a funding to, doesn't it?

And since this oscillator, we know that the numbers are going to be positive numbers from zero to 100

percent.

Again, not going to show the price is going to show a percentage from zero to one, two percent that

you can use to evaluate how.

We're going to show you that in a moment here.

Oh, by the way, to the does is actually kind of poorly sarcastic, actually means randomness.

And what we're trying to do is find out order and patterns.

Right.

And it does help us with that.

So I don't know why they chose that name, but it's not the perfect name for it.

But it's a good momentum indicator.

So let's take a look at this to test stochastic oscillator.

So what it does is it looks not only at the closing price, but also how near is that close to the high

or low of the day.

We saw in some of our other types of momentum indicators, we're really looking at closing prices and

a look back period, whether it's a certain day or an average or this is going to get a little bit more

mathematical and also look more how what is it?

How does it reflect both the high and the low of the day as opposed to just closing?

So, for example, if you have to close the closing prices near the high end, each high is higher than

the day before.

Know not only do you have an uptrend, but you have an uptrend that is accelerating.

It's getting faster.

It's getting stronger.

So in a rally, prices will keep going up like they'll prices will keep going up.

And you expect the price to close near the high of the day in the sell off the opposite prices are going

down.

You expect the price to close near the new low of the day.

So in the example in this little description, you can kind of see we're trying to measure, you know,

how strong are these trends?

Are they are they accelerating and sarcastic oscillator using that mathematical equations behind it

does that for us.

In fact, if you're curious about the math behind it, here you here you go again.

The trading platform automatically do this for you and automatically, you know, put the put the lines

on the chart.

Therefore, you don't have to worry about doing the calculation.

But it is an interesting calculation.

There's some parts you need to kind of know about on there.

One is you're going to see because you're going to have some inputs later here.

We're going to talk about that or some choices here in the next the next slide.

First off, when you see some this is percentage, okay, that is the stochastic oscillator.

So that if you're looking at percentage K, that's the indicator.

And then it's going to compare to a three day simple moving average.

You know how the formula was developed there back in the 50s and that's going to be identified as percentage

D Don't worry, there's nothing else in technical analysis as a percentage and percentage.

The year gets weird like this, but on your chart you're going to have these two lines and they're going

to be labeled K and D again.

The key is the best indicator in percentage D is a comparison to the three day simple moving average

and you're going to look at these two lines in tandem.

Now let's get to the worst slide of the course, not the worst slide, but you actually they make it

a little bit more complicated for you if you want it to be.

So there's three common types of stochastic oscillators you can choose from and they're all on your

trading platform and they'll be in there labeled a little bit weird.

So I want to make sure I covered that for you.

So you're going to see them labeled as fast, slow and full with the other better names.

But that's what they call in fast, slow and full.

So the fast to cast the Goslar.

That's the original one.

That's the original one we just looked at.

As far as the mathematical calculation, that's the basis, you know, that's the basis for everything,

you know.

So that's the base.

Then you can choose something like a slow stochastic layer, which will help make your percentage.

Kay.

Look a little less choppy and smooth out and even more.

And you can see how the formula changed a little bit more.

They added a smoothed it out with a three day period.

Esmay built right into the percentage K and then comparing that to the three period Esmay of the SLOK

or a three day estimate.

It basically is what it is, is the slow percentage.

So what you're really getting with a slow one is a little bit less choppy of lines.

You seem a little bit more chop.

You want to smooth them out a little bit more than you can use a slow stochastic oscillator.

And then there's the forfour sarcastic oscillator and all that really does.

It allows you to customize the number of periods as remember, the number of periods is is kind of a

default there.

And that default is fourteen days.

If we were to look at the formula back on the previous slide, it's a fourteen day default.

So but if you want to change that from fourteen days, you can put in whatever number of periods that

you want and that's really what the force to cast the oscillator does.

This gives you more flexibility in D again, a lot of research on things around stochastic oscillators,

14 days chosen for a reason, so matches up with our size, similar type thing.

So you might want to stick with that.

I would certainly recommend it, but you can also it's perfectly fine.

It's become more comfortable with your training.

If you want to be have more customization, you can certainly do that.

I'll tell you that most people use.

The original formula in the original format also choosing the in effect, the FASTA casting oscillator,

if they have a choice on their training platform, if you don't see choices, I usually give you one.

But if you don't, then just if it's just cast of Goslar, understand that is the original formula and

that is the fast one again with better names.

So if we look at it graphically here, you're going to have your your percentage of stochastic ostler

and then your percentage D, which is that three day simple moving average of that percentage.

So it's a relationship between the two.

And what's going to do is it's going to generate two lines on your chart.

You're going to see, you know, you can kind of see here where it says stop to cast the glass later.

The K is 14 days.

That's the default.

The percentage is three because that's the three day simple moving average.

So that's a default to generate two lines on that.

And you can see, you know, the two lines here right on the chart.

And you can see that they kind of move a little bit tandem and you can see how see how the the three

day one, the pink one is a little bit more smoother versus being less up and down.

So that's because it's a shorter lookback, period.

If you were to customize this and put, let's say, an eighty four, the percentage key percentage K,

if you did customize that, it would then smooth out that percentage a little bit more.

But we'd like to use the default here.

So that's what it looks like as far as the default.

All right, so that's great.

Now how do we use it?

Here's how you use it, because you're trying to again recognize these overbought and oversold conditions.

Overbought traders think the current price rise is an extreme.

It's too high.

We're ready for a turnaround.

So we want to take our profits.

Now, reaching the peak so overbought is indicated when the stochastic oscillator crosses above the

80 percent line.

So this case, you're looking for the 80 percent line and you're looking for when it's overbought and

you want to look for that, you're looking for it to be above the 80 percent line and you're going to

actually make the sell decision overbought when the percentage take crosses below the percentage.

OK, so you've got two things going on here.

We're looking for that overbought condition and then we're looking for a sell signal.

And that's going to tell us when we think we're getting really close to the peak.

And that's that key is going to cross below the percentage to the overall or an oversold condition is

when traders think the current price fall is an extreme, has gone way down in price.

There's few sellers and the price is relatively cheap and it's ready for a turnaround.

Then we're thinking buyers are going to start coming back in.

And how we see this with a stochastic oscillator indicator is an oversold is going to be an indicator

when the has to ask later, the percentage is below the 20 percent line, so there's no below zero.

Remember, it's an oscilloscopes between zero and one hundred percent and there's no prices.

That's a percentage.

So it's going to go below the 20 percent line.

And we're looking for the percentage cut across above the percentage D to give us the indication that's

the time to buy.

Right.

So it's it's kind of like these two kind of sets of conditions that you need to meet for to be kind

of implemented.

So if we looked at this again, graphically on here, you're selling one.

The percentage is above the 80 percent line showing an overbought condition and it's crossing below

the percentage D.

Let's look at it visually in the chart there.

In the same thing, you're going to buy the low part when it's below the 20 percent line and crosses

above the percentage D So you can see where we have the highlighted the real strongly the blue lines

there for the EDI in the twenty percent on the right hand side.

And you can see in this example Tesla there, there's conditions where it does that, where it's above

or below and it crosses over each other to make to kind of confirm the pattern within itself.

And there's times when it's in between and then you're taking no action at all is either overbought

and oversold.

It's just it's just kind of waiting for something to happen.

Well, either sell signal or a buy signal for that to happen within there.

And in this view, you have the price chart on the left and on the top on the bottom of the left and

on the top is the sarcastic oscillator.

And you can see where the lines are crossing the 80 and 20 percent line and also when they're crossing

each other.

And you can kind of see where that's happening.

We're looking at the chart itself on the right hand side there when that starts to kind of match up.

And again, you want to have those two conditions to be met.

And that's the whole idea, is you're trying to anticipate, you know, these buying and selling conditions.

So if we look at the chart on the right, you can see where are once we cross, you know, actually

when the crossing happens, that's when that's when we see we're on this uptrend firstly and we see

the cross, it's above the percent line that crosses below.

And that's where we're going to sell and indicated at the indicator worked and it showed a downtrend

from there.

Then it flattened out and then we saw kind of bottomed out.

And as we saw it start to rise above that twenty percent line, we saw a buying condition, at least

for a short period of time, where it might have been in the.

Buying area.

So that's another way that you can kind of look at these two as far as with the price charts, but a

great way is to start just with your your sarcastic ostler.

Be watching that and then confirm it with other types of price indicators.

By the way, we talked about fast, slow and false, the cast, the Gossling charts as fast as the original,

you know, with a 14 day, the slowest one that uses the original kind of smoothed out that 14 day price.

And a full one is the one where you can input your own numbers.

So if you look at the first two ones, here's the exact same chart for Taslim and the exact same time

period.

And you can see that, that the one below the fast two hours to cast Ostler a lot more jerky up and

down, a lot more up and down.

They're not as smooth out as far as the black line.

If we make that into the slow one, you can see how it now adds an extra smoothing factor with a with

a factor built into the equation.

The estimate built into the equation, the simple moving average in addition to the percentage.

And so that makes it a little bit easier to read and see as far as when these lines might be crossing.

So sometimes you might see something using your traditional on your original one, and then he just

a simple click of a button or two to overlay it with a slow one or replace it with a slow one to kind

of see it a little bit better eventually.

Again, the full one on the bottom is that's all customized to between them.

So whatever you put in, it's going to have a dramatic input on the chart.

You know, I use the ten days for a shorter look back to see if it was more price sensitive, which

would be more price sensitive by using a full stop.

So if I I like it, but I want to be more price sensitive and more even more reactionary than I might

put in a shorter time period versus, let's say, a longer time period.

So as you play around with this, you can can I go into how they look?

I would say most people, they're using the traditional the original style or be termed as a fast and

then they might use the slow one to just kind of see it a little bit visually right before maybe they're

decided they're going to do something.

They want to just make sure they're seeing what they're seeing a little bit close, clear.

And so they'll use the slow one in that aspect.