full stochastics vs slow stochastics

71Warhawk

Do you guys have an opinion on whether it is best to use full vs slow sto when scanning for stocks.
Thanks,
Gary Bird

markd

All three versions of Stochastics, fast, slow and full, are useful.

Fast is the "purest" form. Fast Line (%K) simply measures where the latest close is in relation to the highest and lowest close over the time period you select, say, 10 bars or 20 or 30. Fast Signal (%D) is a moving average of K, maybe a 3 ma or 5 or 7 ma. It is supposed to be a signal when K crosses D after crossing below 20 or above 80. In fact, if you are brave, and can read where support and resistance ought to be, you can often enter long on just K crossing below 20 or short crossing above 80 and not wait for K crossing D.

Some people perceive Fast K as too volatile and gives too many false signals. This is true when tops or bottoms are choppy - that is, the stock closes up and down in a range before changing direction. Slow Stochastics was invented to overcome this problem. In Slow Stochastics, Fast D from Fast Stochastics becomes Slow K - in other words, the up-down volatility of Fast K in the topping/bottoming range is filtered out by using Fast D (the average of Fast K ) as Slow K. Then, an average of the Slow K become the Signal line, Slow D (so slow D is an average of an average). Depending on the market, K crossing D produces an entry after the topping/bottoming volatility has passed. The drawback is the entry can be pretty late off the lows or highs and miss a major part of the new move.

Slow Stochastics is still too volatile in some markets, so why not smooth things again? That's what Full Stochastics does. It takes Slow D and makes it Full K, then averages Full K as Full D. The same trade offs - fewer false signals for smaller potential profits apply again.

I think the question is not so much which indicator is best for all stocks, as which stocks are best for each indicator. Most indicators have a look back period (the number of bars they look at). If the look back period more or less matches the stock's cycle, or rhythm, you will get good signals. The problem is, different stocks have different rhythms, and even the same stock changes rhythms.

So, there is no one answer (which is why there are three versions of the indicator). You just have to experiment. Maybe develop scans for each type, play with the parameters for each type, and see what you get. Maybe concentrate on a sector or industry until you get a feel for which is working for those stocks. Even try different time frames - daily and weekly, see which is better for each.

71Warhawk

Mardkd, thanks for your comments and the time you spent answering my question. I see what you are getting at and it makes sense. I will definitely try different time periods.

Do you mind showing me an example or two of stock cycle/ rhythms? I believe I understand what you are saying but would like to know for sure.

Thanks,

Gary Bird

markd

I don't use slow and full, but here's an example of fast, without the signal line.

https://stockcharts.com/h-sc/ui?s=FCX&p=D&st=2020-05-01&id=p94733468773&a=733807753

FCX is in a nice up trend, and (almost) every time it gets near the low of its 10 day (two week) channel it's a low risk buy.

So, it seems to have gotten into a groove where the ten day channel low is a bottoming area. Eventually it will break that groove.

I have several calendar based channels and stochastics (2 weeks, a month, three months (a quarter) and a year) because stocks seem to respect them. When one doesn't work (say the 10), the next one (the 21) often will.

Stochastics and channels are related because they both track the high and low within the time period specified in the parameter(s) (except Stochastics tracks the high and low closes, channels the actual high and low, but close enough). Sometimes, Stochastics won't give you the signal (crossing below 20 or above 80), but you will see the wick or tail of a bar does cross the channel, which can be a suitable cue.

Hope that helps.

71Warhawk

Yep, it did help Mark.

Thanks

RAClose

OH MY!!! I wish I could copy and share this with everyone everywhere, that post by Mark is just what the Dr ordered for me. If you write a book that is like this recent post, explaining the secrets behind the technicals, I will buy it! Thank you Mark.