The Stochastic Indicator
- Thread starter jack hershey
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So Jack, basically you agree that the "beginner fast pace stochastic" method as you first laid it out, is un-profitable when backtested? And now you're adding additional rules and "stuff" and you're telling us that as they get added, the results of backtesting will improve and get into the profitable territory? I'm just trying to understand soo we're clear on what's going on here.
Just thought I'd mention that it appears you used the fast stochastic to enter and exit. OK with me, but Jack had said to use the slow line to enter, the fast line to exit.
That short at 3:50 looks like it should have been at 831.75, a point lower. It's not clear to me how you exited this or when.
OldTrader
21 PAGES OF INFINITE WISDOM.
GOD WE SHOULD SEE A FEW NEW MILLIIONAIRES ARISING FROM THE THE ASHES THIS MONTH!
ps last post i jus cant take no more genuses 2night
GOD WE SHOULD SEE A FEW NEW MILLIIONAIRES ARISING FROM THE THE ASHES THIS MONTH!
ps last post i jus cant take no more genuses 2night
Nihaba, I do not think I can agree with you unless you mean really strong trends, but then why do you need any indicator to tell you that. Stochastics can be used to show weakening and strengthening of trends. Don't have time to elaborate on that, have yet to check out the whole thread, but too busy working on other things right now.
One thing I would not use stochastics for is system trading, which is what Jack suggests and as I understand someone pointed out that it does not work or at least cannot be proved via backtesting.
I would use it only for discretionary trading which is more art than science and of course it's good to use it with other indicators. I like to use it with BBs.
I am glad that Jack is back. I will take time to get to know his method better when my time permits.
Wally,
That's why I specifically mention (what you read) PARABOLIC trends and not some small trend or trends within tight-trading ranges.
PARABOLIC TRENDS...I did not say stochastic doesn't work during small trends within tight-trading ranges.
The graph example that I included in Alain's quote is the following and in Alain's question...it was a question towards a chart he posted with a PARABOLIC TREND that started after it crossed below that moving average line in his chart example:
http://www.elitetrader.com/vb/attachment.php?s=&postid=208686
Note: In that same graph above that's posted by Alain...there would have been problems with using the Stochastic for Short positions while it was overbought...that pattern itself is a completely different type of trend...easily recognizable...letting a trader to know not to use the stochastic (I won't discuss that pattern for particular reasons).
Here's that original quote:
Tight-trading ranges have small trends...this is the environment where Stochastic excels....but not in an environment of parabolic trends.
Here's an example (sorry...I can't upload any charts right now because of problems with my data providor QCharts)...
Look at the ES between 0949am - 0957am est on Feb 10th 2003...that counter-thrust or small trend is where stochastic is appropriate.
Nice overbought condition for a Short position.
Now look at the ES between 1017am - 1030am est on Feb 21st 2003...that downtrend is parabolic and Stochastic was oversold from start to finish...any trader trying to pick that PARABOLIC downtrend via a Long position (never try to catch a falling knife) got burnt unless they enter somewhere around 1030am est.
That entire parabolic drop...Stochastic was oversold from about 838.00 down to 830.00
The problem with traders using stochastic is that they have good success with it in non-parabolic environments...
then one day...there's this parabolic trend...they naturally wait for the stochastic to get either oversold or overbought and enter their usual position...to only take consecutive losses until they come to the conclusion....
Wow...this trend is strong.
All PARABOLIC trends have wide range candlesticks, lots of volume/volatility, making intraday highs or intraday lows, smashing thru pivot points or s/r levels, often not always via a news event and will climax with blow-off volume spikes...and that's just a few things common about them I just mentioned
PARABOLIC...PARABOLIC...this is not the environment to be applying the stochastic.
Therefore, traders need to know when they should use their indicator and when not to use it...knowing the indicators weakness and strengths.
That's an exploitable edge.
Traders that understand how these parabolic trends behave...can consistently trade their reversals for large points...every week.
In fact...in my opinion...parabolic trend traders are the people making the biggest points.
There's an old trader saying...trying to pick tops or bottoms is a losers game.
(Note: not all all parabolic trends are making new intraday highs or lows...just most. Thus, traders that profitably trade them...are not always picking tops and bottoms)
However, it only is if you don't know how to do it and not recommended for newbies to the Eminis.
Simply...parabolic trends are the gold mines in the Eminis and traders that successfully and consistently trade them...are not walking around saying there's no volatility in the market nor walking around saying the market has been so difficult to trade these past months.
P.S. Wally...your absolutely correct...Bollinger Bands if thats what you meant by BBs...are great when bundled with stochastic.
NihabaAshi
Unless I'm mistaken--isn't this exactly the "rocket"(1min. chart) that Jack's methodology catches?
It just seems that Jack is using stochastic in a totally different manner than Nihaba describes. I agree that you are in trouble if you use the stochastic in the traditional manner Nihaba describes.
kempo
Quote from tampa:
There's no foolin' you, OldTrader
Yes, I do use the "fast" line for entry. As for the 03:50 trade, it is a real one - I can't explain why you think it should have been a point lower...as for the exit, it came a few minutes after 4PM...and was closed simply because of the time.
Actually, on my chart, that signal comes at the close of the 3:50 bar (which makes it 3:55). assuming you're using the entry with the fast line below 20 on the 5 minute chart. That close is 832.00. If you waiting until the fast line went above 20 to exit, that came on the close...resulting in a loss.
My quote vendor is Esignal. I'm looking at the 5 minute chart. Looking at the fast stochastic using a setting of 14-1-3. Now if you're doing something different than that, it would account for the different result. I noticed for example that earlier in the day you made a trade on the one minute chart.
As far as these results go, again, it makes no difference to me how anyone uses this indicator. But obviously it's important to state the technique in the event that anyone wants to duplicate the trade in the future.
OldTrader
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