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Technical analysis in the forex market

Stochastics

 
Chart  stochastics
 

The stochastics is one of the Oscillator analysis, which was developed by Mr. George Lane. This method indicates where the closing rate is located in the previous ranges. The stochastics adopts the closing rate and two momentum lines based on the highest prices and the lowest prices in the recent five days. One is called as %K and the other is as %D.

The formula to calculate the Stochastics is as follows;

The formula to calculate the %K is as follows;

%K = 100 ( ( C - L5 ) / ( H5 - L5 ) )
C = the last closing rate
L5 = The lowest price in the recent five days
H5 = the highest price of the recent five days

The formula to calculate the %D is as follows;

%D = 100 ( H3 / L3 )
H3 = ( C - L5 ) x 3
L3 = ( H5 - L5 ) x 3

Same as RSI, this is used for trend protesting, and it insists on the selling signal when the figure exceeds 70 and the buying signal when it falls below 30. The stochastics indicates the selling signal under the condition that the momentum line of %D is over 70 and it crosses another momentum line of %K. On the other hand, it falls the buying signal under the condition that the %D is below 30 and it crosses %K.

Use of Stochastics by developer

Mr. Lane said that it is quite confident when the %D is above 85 or below 15, and more confident when the lines cross twice each other upper than 70 or lower than 30.

Display of daily chart and Stochastics

 

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