Escon deOjo's Forex

Stochastics can be either fast or slow. This speed doesn’t relate to the amount of time periods that it covers, but how swiftly it’ll respond to a change in direction from bullish to bearish or vice versa. The fast stochastic is more responsive, like a fast vehicle. This is the mathematical formula for fast stochastics :

%K = 100((C – L14)/(H14 – L14))

C = last closing price, L14 = lowest low in the past fourteen periods, H14 = highest high during last 14 periods. There’s also a signal line %D which is a three period moving average of %K. Stochastic based trading systems sometimes take a signal from the crossover of the two lines %K and %D. However, some traders find it responds to changes in price movements too swiftly, leading to a premature signal. So slow stochastics were developed. The slow stochastic indicator applies a three period moving average to the %K of the first equation. The new %D is then a three period moving average of the new slow %K. Clearly this is going to reduce sensitivity to minor variations in cost. It decreases the likelihood of coming to the market on a fake signal and also forestalls closing out of a trade too soon. Part of the fact that stochastics are often ignored by day traders is that they target the fast stochastic while actually the slow stochastic would serve them much better.