USING THE STOCHASTIC OSCILLATOR - NUS Investment … · Using the Stochastic Oscillator Leow Zhi Heng & Jeremiah Li TAFX Department Using Crossovers between the %K and %D Lines 2

NUS Invest

nusinvest.com

DISCLAIMER AND DISCLOSURES

Please read the disclaimer and the disclosures which can be found within this

report

TAFX

USING THE STOCHASTIC OSCILLATOR

12th February 2015

Leow Zhi Heng & Jeremiah Li

TAFX Department

http://nusinvest.com


Disclaimer

Using the Stochastic Oscillator

NUS Invest

nusinvest.com



report

NUS Invest is in no way affiliated or representative of any other company, organisation, club or society,

and the views presented are solely our own opinions.

The author(s) is not a licensed investment advisor. Our services are educational tools designed to assist

you in your personal judgment. It is not designed to replace your licensed financial consultant, and nothing

in the content shall be construed to be an offer or solicitation for the purchase or sale of a security.

All content on our website and related services is for informational purposes only, and opinions have been

made on a general basis. No consideration has been given to any particular individual or specific

investment objectives, financial situations or other circumstances. As such, the content should not be

relied upon as authoritative without further being subject to the recipient’s own independent verification

and exercise of judgment.

The fact that the content has been made available constitutes neither a recommendation to enter into a

particular transaction nor a representation that any product described within is suitable or appropriate for

the reader. Readers should be aware that many of the products which may be described within involve

significant risks and may not be suitable for all investors, and that any decision to enter into transactions

involving such products should not be made unless all such risks are understood and an independent

determination has been made that such transactions would be appropriate.


TAFX Department

12th February 2015



Agenda

NUS Invest

nusinvest.com



report

• Introduction to Technical Indicators

• Introduction to the Stochastic Oscillator

• Using the Oscillator

• Limitations



TAFX Department

12th February 2015



Agenda

NUS Invest

nusinvest.com



report



TAFX Department




• Limitations

12th February 2015



Introduction to Indicators

NUS Invest

nusinvest.com



report



TAFX Department

What are they?

• Statistics used to:

Forecast stock trends and price patterns

Who uses them?

• Short-term traders – Technical Indicators

• Long-term investors – Entry/Exit

Why use them?

• To provide confirmation for entry and exit points

12th February 2015



Agenda

NUS Invest

nusinvest.com



report



TAFX Department



• Using the Stochastic Oscillator

• Limitations

12th February 2015



Introduction to the Stochastic Oscillator

NUS Invest

nusinvest.com



report



TAFX Department

What is it?

–Oscillator which follows momentum

• Momentum: Rate of rise/fall in prices

When to use it?

–Best used in a market:

• Trending sideways

• With high volatility

Why use it?

–It is a sensitive oscillator

12th February 2015



Introduction to the Stochastic Oscillator

NUS Invest

nusinvest.com



report



TAFX Department

(John Murphy)

Stochastic Oscillator

Consists of:

%K Line

• Shows you the location of the close price in a specified time period

%D Line

• Moving average of %K within a time period

12th February 2015



Agenda

NUS Invest

nusinvest.com



report




• Limitations



TAFX Department

12th February 2015




NUS Invest

nusinvest.com



report



TAFX Department

• Three ways to utilize the oscillator

–Make use of overbought/oversold region

–Look out for crossovers between %K and %D lines

–Make use of divergences

• Signals which satisfy all three conditions are the strongest

12th February 2015




NUS Invest

nusinvest.com



report



TAFX Department

Using Overbought and Oversold Regions

12th February 2015




NUS Invest

nusinvest.com



report



TAFX Department

Using the Overbought and Oversold Region

• Green area above 80 is

considered Overbought

• Red area below 20 is

considered Oversold

12th February 2015




NUS Invest

nusinvest.com



report



TAFX Department

Using the Overbought and Oversold Region

• Green area above 80 is

considered Overbought

– High probability of price

• Red area below 20 is

considered Oversold

– High probability of price

12th February 2015



NUS Invest

nusinvest.com



report



TAFX Department

12th February 2015




NUS Invest

nusinvest.com



report



TAFX Department

Using Crossovers

12th February 2015




NUS Invest

nusinvest.com



report



TAFX Department

Using Crossovers between the %K and %D Lines

1. Identify crossover:

A crossover is when:

– %K line crosses the %D line

If the %K moves ABOVE the %D line, it’s a BUY signal

If %K moves BELOW the %D line, it’s a SELL signal

12th February 2015




NUS Invest

nusinvest.com



report



TAFX Department

Using Crossovers between the %K and %D Lines

2. Take note if

crossover is

near/close to

Overbought or

Oversold region

• Crossovers near the Overbought and Oversold regions are strong signals

12th February 2015



NUS Invest

nusinvest.com



report



TAFX Department

12th February 2015




NUS Invest

nusinvest.com



report



TAFX Department

Using Divergences

12th February 2015




NUS Invest

nusinvest.com



report



TAFX Department

Using Divergences

• What is a Divergence?

– When Price moves in a direction opposite of the Stochastic Oscillator

12th February 2015



NUS Invest

nusinvest.com



report



TAFX Department

12th February 2015



Agenda

NUS Invest

nusinvest.com



report




• Limitations



TAFX Department

12th February 2015



Limitations

NUS Invest

nusinvest.com



report



TAFX Department

• False Signals

–Do not use the Stochastic Oscillator alone

–Instead, combine with other methods of analysis

12th February 2015



NUS Invest

nusinvest.com



report



TAFX Department

Stochastic Oscillator Strategies:

–Stochastic Pop and Drop

• StockCharts.com » ChartSchool » Trading Strategies and Models » Stochastic Pop and Drop

In depth information on Stochastic Oscillator:

– Go to Stockcharts.com » ChartSchool » Technical Indicators and Overlays » Stochastic Oscillator

Additional Information

12th February 2015



Documents

USING THE STOCHASTIC OSCILLATOR - NUS Investment … · Using the Stochastic Oscillator Leow Zhi Heng & Jeremiah Li TAFX Department Using Crossovers between the %K and %D Lines 2