Slow Stochastic (Slow STO)
The aim of the STO is to find out the current price position taking its range based on the period of bars into account. 14 most recent input Length bars are used by default settings, the input High Value and Low Value (a range) is established by highs and lows of the given period, and the input Close Value (current price) is set by the close.
Then follow the indexation, smoothing, and SlowK plotting of this calculation. The SlowD, which is SlowK's smoothed average, is traced as well. The values of SlowK and SlowD may vary (oscillate) from 0 to 100. The Stochastics direction follows the price movement, e.g. the increasing prices cause the Stochastics raise.
Non-confirming or divergent points can also be found out through Stochastics. For instance, a fake situation is observed when the Stochastics does not support the new price increase. Extremely high or low values of Stochastic may also be an indicator of an overbought or oversold market, while an opposite sign is given when the SlowK crosses the SlowD.
Both Slow Stochastic and a five-day moving average of a 12-day interval chart the stochastic. The Stochastic Oscillator attempts to reach the accuracy of the indicators and volatility reduction.
The obvious signals of the stochastic are oversold situation at values over 80 and overbought one with values lower than 20.
The mild trends having bias that are slightly up or down as well as broad trading ranges are best for applying Stochastics. The market trending persistently with only minor corrections is the worst for the stochastic usage. The stochastic give an opportunity to enter the trade at the period when the reaction for the trend signal weakens (which is shown by stochastic crossing taking place at any level.) and ignore any oversold or overbought signals that means trading by trend.