|All you want to know about Stochastics|
August 2005 Ensign Wed Class Transcript
June 2006 Ensign Newsletter 78 Stochastic Formula
August 2001 Ensign Newsletter 20 Stochastic Fundamental Behavior
October 2001 Ensign Newsletter 22 Stochastic Parameters
17:46 mikey: In previous charting packages I have used, stochastics required only two values:%K and %D. In Ensign, I am puzzled by the Bars parameter. So, my question is what would one enter for, say, a stochastics of 14/3?
17:48 Ensign Howard: Mikey, the Stochastic has a bars parameter which is the period over which the Highest High and Lowest Low is found. A typical parameter is 14. Then the Stochastic has a smoothing parameter for the average of the raw stochastic values which are too choppy to be of much use. So the average parameter is needed, and typically this is a 3 or a 5. The first average of the raw stochastic is the %K Slow line.
17:50 Ensign Howard: Most want to also plot a 2nd line which is another moving average of the %K Slow data, and this 2nd average is called the %D Slow line.
17:51 Ensign Howard: Since a 2nd average is involved, a 2nd average parameter is needed, and if this is NOT provided independently of the 1st average parameter, then the other charting software probably just uses the 1st average parameter for the 2nd average as well. So the 14/3 would be a 14 period for HH and LL range, and 3 for smooth for %K line and an assumed 3 for the %D line.
17:52 Ensign Howard: Most software has both %K and %D lines as first average of raw stochastic and 2nd average of the 1st average. In Ensign we allow you to use a different parameter for the %K average and the %D average, So something like 14/5/3 would be 14 bars, 5 for 1st average parameter, and 3 for 2nd average parameter.
17:52 mikey: If I understand, then, other charting packages provide for only one level of smoothing? that is, %D
17:53 Ensign Howard: no Mikey, they all do 2 average. It is just that the use the same average parameter for both averages. Let me show a formula example.
17:54 Ensign Howard: raw = (HH - Last) / (HH - LL)
17:54 Ensign Howard: %K = MovAve( Raw, 3 )
17:54 Ensign Howard: %D = MovAve( %K, 3 )
17:55 Ensign Howard: In Ensign we allow you to use different values in the position of the 3 parameter shown in the example. We all do the 2 averages. I think I have my Raw inverted and I showed the William's Percent R formula
17:56 Ensign Howard: raw = (Last - LL) / (HH-LL)
17:57 Ensign Howard: That way when Last is = to HH then the raw is a 1.00. Raw is also shown as a percent by having * 100 on the formula. So Last at new highs is a raw stochastic of 100 and Last at new lows is a raw stochastic of 0
17:58 Ensign Howard: HH is Highest high in the set of bars in the period of 14 bars and LL is the Lowest Low in the set of bars in the period
17:58 mikey: So in another package that takes only two values, the value for %K will use the smoothing factor specified by %D, and %D will apply its own value to %K?
17:59 Ensign Howard: Mikey, if they have 1 average parameter it must be used in two places so it just is a little less flexibility. If they have 14/3 then the equivalent in Ensign would be to use 3 for both averages by entering in 14/3/3
17:58 Ensign Howard: On the topic of stochastic is our excellent Trading Tips articles from a few years ago. See Links above - #78 and #20.
18:02 Ensign Howard: I think these 2 articles from the Newsletters is a better treatment of what Stochastic is and does than anything else I have ever read. So the article shows the effect of different formulas and different parameters using side by side images. This is a class A article, one of our best, and often referenced and still not out of date. If my articles were to be published in a book, this is one that would be included in the final cut for inclusion
Stochastics Property Window
Raw stochastic is the percentage of where a price is in a range of highest
high - lowest low over a set of bars. Some call the raw value
Last updated 07/01/2007