Stochastics and price action
- Thread starter feb2865
- Start date
Ignore him, he trades intraday "hypothetically" and was touting a website before Magna called him out on it and he trades off of support and resistance but claims technical analysis is worthless.
speaks for itself...
speaks for itself...
keltner channels is the other indicator I was looking for . Settings 20/2 works very good on 1 minute charts.
I started to incorporate indicators recently. I still considering S/R as Alex suggested.
Indicators do that, indicates. If you interpret them correctly can be very helpful. Here's a charts of today.s 5/15/2007 action on YM. Just notice how the price behaves once it braks the channel and comes back from overosld/overbougth territory, matching the stochs
the green lines are possible entry/exit points
I started to incorporate indicators recently. I still considering S/R as Alex suggested.
Indicators do that, indicates. If you interpret them correctly can be very helpful. Here's a charts of today.s 5/15/2007 action on YM. Just notice how the price behaves once it braks the channel and comes back from overosld/overbougth territory, matching the stochs
the green lines are possible entry/exit points
I agree with you completely
Based on what you said I was checking the bollinger bands site and I found something interesting very much in line on what you're saying
here's the link
http://www.bollingerbands.com/services/bb/?page=6
The distinction between a randow walk, and a stochastic integral (Brownian Martingale) is worth understanding. I forget exactly what it is, but a random walk (martingale) is the limit of a stochastic process. i.e., in the limit, a stochastic process is an approximation of a random walk. I remember that Ito stochastic differentials came in some how...Quote from itmediaco:
Stochastic actually means random...
I think that is right. Anyway, the exact relation is worth knowing. If I remember correctly, the reason you go from random walks to stochastic integrals is because random walks are nowhere differentiable.
nitro
feb: keep in mind the relationship between the base of calculation (ie the close) in the RSI, STO and W%R indicators and the timeframe you are trading and what market.
When you are dealing with an exchange and you are looking at closing prices on a daily chart, it's useful to consider the message of the indicator.
When you are trading a 24 hour market such as FX, with no closing hours or you are looking at a 1 hour chart, using these indicators simply means that you are disregarding the current's bar high and low and only looking at the close, which is a bit irrelevant.
When you are dealing with an exchange and you are looking at closing prices on a daily chart, it's useful to consider the message of the indicator.
When you are trading a 24 hour market such as FX, with no closing hours or you are looking at a 1 hour chart, using these indicators simply means that you are disregarding the current's bar high and low and only looking at the close, which is a bit irrelevant.
My humble opinion about a divergence is this:
Usually a divergence indicates the fact that although the current peak (we shall take an uptrend with a bearsih div as an example) is higher than the previous, the momentum is actually lower, meaning that the power of bulls has actually diminished, there was a lower enthusiasm for a move. The effect of the divergence should not be a reversal of the trend as many people see it, but a mere correction. When you play the divergence, you should know that, and not swing for any fences. Just place the stop above the last peak as when the peak is "taken" your divergence is not valid anymore, and when the trade moves in your favour, quickly trail your stop.
Now, coming back to the divergence itself. The best indicator for a divergence is an indicator derived from moving averages, which are the closest thing to price and measure speed as we;; as amplitude in a linear manner. When they move far apart, they indicate that momentum is increasing. A good indicator for divergence is MACD Histogram, with which you can rate the power of individual swings inside a trend. MACD lines rate the power of different mini-trends, but can't gauge the swings inside them.
Stochastics is also a momentum indicator, but it does not analyze the market in a linear fashion, like the MA-derived indicators, but by looking back and comparing ranges. For me, this is a little empirical to be trusted, BUT, it works, and i'll tell you where it works. First of all, because of the calculation formula, it works on daily charts of instruments that are exchange based. Second, it works on charts that show a constant flow, and are not disrupted by periods of really low volatility, followed by periods of madness and then disrupted again. It doesn't work however on intraday charts. The idea is that the more low-level you get with your timeframe, the more primitive the indicators should be, or you should rely heavy on chart patterns.
So divergence of Stochastics works on the above mentioned charts. Hidden divergences..hmm... anything "hidden" doesn't sound good to me.
Usually a divergence indicates the fact that although the current peak (we shall take an uptrend with a bearsih div as an example) is higher than the previous, the momentum is actually lower, meaning that the power of bulls has actually diminished, there was a lower enthusiasm for a move. The effect of the divergence should not be a reversal of the trend as many people see it, but a mere correction. When you play the divergence, you should know that, and not swing for any fences. Just place the stop above the last peak as when the peak is "taken" your divergence is not valid anymore, and when the trade moves in your favour, quickly trail your stop.
Now, coming back to the divergence itself. The best indicator for a divergence is an indicator derived from moving averages, which are the closest thing to price and measure speed as we;; as amplitude in a linear manner. When they move far apart, they indicate that momentum is increasing. A good indicator for divergence is MACD Histogram, with which you can rate the power of individual swings inside a trend. MACD lines rate the power of different mini-trends, but can't gauge the swings inside them.
Stochastics is also a momentum indicator, but it does not analyze the market in a linear fashion, like the MA-derived indicators, but by looking back and comparing ranges. For me, this is a little empirical to be trusted, BUT, it works, and i'll tell you where it works. First of all, because of the calculation formula, it works on daily charts of instruments that are exchange based. Second, it works on charts that show a constant flow, and are not disrupted by periods of really low volatility, followed by periods of madness and then disrupted again. It doesn't work however on intraday charts. The idea is that the more low-level you get with your timeframe, the more primitive the indicators should be, or you should rely heavy on chart patterns.
So divergence of Stochastics works on the above mentioned charts. Hidden divergences..hmm... anything "hidden" doesn't sound good to me.
I'm with you.
I much prefer that single indicator used in a way that is reliable 90-100 percent of the time AND in real time myself. Which one is your favorite?
Learning to recognize the different types of divergence on a chart and the potential effect on price is not necessarily easy but worth the effort.
Here is a link to a site that does a better job of explaining divergence than most:
http://www.trading-naked.com/Divergence.htm
I much prefer that single indicator used in a way that is reliable 90-100 percent of the time AND in real time myself. Which one is your favorite?
Learning to recognize the different types of divergence on a chart and the potential effect on price is not necessarily easy but worth the effort.
Here is a link to a site that does a better job of explaining divergence than most:
http://www.trading-naked.com/Divergence.htm
Quote from alex.samant:
Hidden divergences..hmm... anything "hidden" doesn't sound good to me.
And you would be missing the better half of the boat.
Reverse or hidden divergence is actually more reliable than regular divergence. It indicates trend continuation instead of a reversal in price. The link I posted above will enlighten you on divergence and the different types.