Escon deOjo's Forex

Stochastics can be either fast or slow. The fast stochastic is more responsive, like a fast car. This is the mathematical formula for fast stochastics:

%K = 100((C – L14)/(H14 – L14))

C = last closing price, L14 = lowest low during the past fourteen periods, H14 = highest high during last fourteen periods. There is also a signal line %D which is a 3 period moving average of %K. Stochastic based trading systems generally take a signal from the crossover of the 2 lines %K and %D. The fast stochastic was the 1st and remains the main stochastic indicator utilized by traders. But some traders find it replies to changes in movements in prices too quickly, resulting in an early signal. So slow stochastics were developed. The new %D is then a 3 period moving average of the new slow %K. Obviously this is going to reduce sensitiveness to minor changes in cost.

The slow indicator is therefore the one that is most often utilised by day traders. Part of the reason that stochastics are typically ignored by day traders is that they target the fast stochastic while in truth the slow stochastic would serve them far better. It can be very effective, so check it out in your charts or look for a technical charting service that provides it.