Quote from illiquid:
Do people really need stochastics to tell them something is reversing from an "oversold" condition? If you trade a single vehicle, whether it be a stock or future, and are capable of sitting down and watching it day in, day out, noting where the levels of resistance and volume are, you will be way ahead of any price/volume derived indicator out there.
Stochastics has really gotten beat up by folks.
Old observed that during "oversold" is when he sees the market still.....etc
now you see the "oversold" condition.... as something reversing from something......
Look at ES on the 5 min today (17 FEB 03) using beginner's 14, 1, 3. Now that's oversold!!!
A relative indicator is always going to be at an extreme under these conditions.
It looks like people see coming into "oversold" as a signal. Well it is, of course. It is an entry signal for fast pace markets and a "hold" signal for all other paces.
You also get to know that a prolonged "oversold" indicates what?......the answer is a lateral period of congestion leading to convergence and centering. where will the Stochastics arrive at at the end of this pattern of three formations?? Where else but on neutral....because it is a relativeistic indicator and 50% is neutral point.
Reversals?? What is the indicator sequence for reversals on stochastics?
Well there are three kinds of trends and only two pairs of them can lead to reversals. The other two pairs have as a first trend a lateral trend.
When can you reverse? Not until you are making about 150,000 a year per contract on the ES.
Its best to do a wash trade several times a week as a warm up for reversals. Once you can do wash trades any day of the week you can then see where revrersals are possibilities and how to extract yourself when you need to.
If the pace is fast and you are picking off 10 or more points on an ES trend, then you are seeing "overbought" all during your hold period. When you slip out of the trade, the stochastic is headed out of overbought and NOT to a reversal. Now that it is gone from "overbought" it goes to one of two places. the first place it must hit is neutral. From neutral it can chosse to reform into the prior trend (rezoom as they say) or cool off from the prior trend into an opposite trend. No reversal here though neutral comes first.
When you get to slower trends than fast paced you will see all the typical formation pattern folk use.
a long trend at a slow pace with the 20 80 taped (intermediate level trading) looks like icebergs flaoting in a row (count three usually. You enter when "over sold" appears as firt iceberg. You hold thorugh the second and third iceberg. You didn't exit like in fast pace because the "oversold was" sustained... old notices this.
You exit only when the lines come out the other side of the tape which proves there are no more "rezooms". Each iceberg is, of course, a rezoom.
yuo can see how by building on the "fast pace only" beginner thing and including slow paces too that you creep up from 90,000 a year beginner level per contract to 150,000 by adding slow pace.
I know that the effort of using an indiocator like stochastics to get started is not pleasant...maybe. to me it seems a good way to understand the market better and get into learning what sequences of patterns or indicator signals mean.
We still aren't able to trade reversals. first you have to do two more things. To get ready.
If anybody is reversing out of "overbought and is pulling down less than 150,000 per year. just stopping what you are doing will put you further into the chips.
who knows maybe we can get a little milage out of indicators after all.
KISS is a nice place to be.
if my stuff is hard to read to one of two things: use a yellow high liner to accent stuff. Or second after you highlight use black to kill about half the rest. Do not cross out the annual money made; you need to underline that in green.
