Look at it this way %K is the short-term trend say 5 days and %D is a 3 period moving average of %K. So maybe it carries 8 or 9 days data in it. What you are looking for to act, assuming you have divergence from price, are in the appropriate crossover area, and a cycle bottom is due. You want to act when both the short and the long-term trends turn simultaneously. You do not want to act with the short term in your favor and the long term still going against you. The right hand cross is when the momentum of the five-day and the nine-day are reacting against the previous trend.
Actually it is impossible to have a middle crossing. The prices of the five and nine day would have to go straight up. If this was plotted on a chart with time, the lower line would have to pass through the slower line before it reached the next day.
This is really very simple. When you have a bullish diversion, and prices are reaching a cycle low. The faster line will be leading the slower line down. This will put the faster %K line below the slower %D. When the closing prices run into support, they have nowhere else to go but bounce away. The closing prices may rise but the dayÃs lows will remain the same (Cpr). When the momentum of the cycle turns and it brings %K up fast enough to pull the slower %D up with it from the crossover area. When this happens %K will cross %D on the right hand side of the price cycle bottom. This is the signal to act, that Stochastic gives.
If zorrosg has not seen a right hand cross, he is using to slow of a variable for %K. Try it the way George Lane developed it, acting only on his signals, and see if you get better results.
Stochastics goes not give false signals. It always shows when the closing price is bumping up against support. In a case of extreme force one of Jake BernsteinÃs Stochastic Ãpops,Ã may be happening. The rules for that are to wait until some arbitrary percent has been retraced before acting.
Many people act on signals that they made up themselves and try to blame the oscillator for giving a false sign. Stochastic shows what it shows. George Lane himself best explains how to act on it. This is not the complete story, if you or anyone else is interested write me. And I will email you a copy of one of the books from his classroom.
