Intraday Stochastic Pop: Definition
Ive been asked on many occasions why I call my unique use of stochastic the "stochastic pop" indicator (referred to hereinafter as SP). Very simply, the SP is so termed because it enters markets when most traders consider markets to be overbought or oversold. In other words, the SP signals a buy when a market is considered by the vast majority of traders to be overbought and incapable of going any higher. SP enters short positions when the majority of traders considers the market to be oversold and unlikely to go any lower. |
Basic Approaches to SI Timing
Generally speaking an SI reading of 75 percent or higher is considered overbought and a reading of 25 percent or lower is considered oversold. Because the SI can remain in the overbought (OB) or oversold (OS) area for lengthy periods we advise against sell decisions made simply on the basis of an OS condition. If you use the SI for the purpose of selling and buying on such extremes, you must wait for the cross to occur from OB back under 75 or for a cross above 25 from OS. This approach to the use of SI requires you to wait for SI to rise to 75 percent or higher and then to fall below 75 percent on a closing basis |
The Basic Stochastic Indicator
Futures traders have discovered through trial and error (mostly through error) that effective timing indicators can be applied in many ways and in a variety of combinations with other indicators. Dr. George Lane advanced numerous applications for his stochastic indicator; I have, through persistence, considerable research, and the "school of hard knocks" amplified on George Lanes original research. In fact, George has adapted at least one of my uses of stochastic, the stochastic pop indicator, to his own use. |
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Moving Averages as Support and Resistance
Another approach to the use of MAs is to use them as measures of support and resistance. Generally defined, support is a price level from which the market is expected to recover should it decline following a price rally. Resistance is a price level from which the market will decline following rallies in a declining trend. Support is used for the purpose of establishing long positions on price reactions or corrections during rising markets. Resistance is the price level used to establish positions on rallies during bear trends. |
Evaluation of the MA Crossovers-Price versus MA as a System
Although this approach is certainly simple enough and easily applied to virtually any market, it is not a good system to use in markets which are not trending. It is essentially a method which will lose you money between slippage and commission. Although the rules of entry and exit are specific and objective, using this method profitably is more of an art than a science. The overall accuracy of this technique is about 25 to 35 percent at best. If you are using this method on 30-minute to 60-minute data, strictly according to the rules outlined above, then an MA length of about 10 to 14 units is best. The results, after slippage and commission, however, in most markets will be less than $100 per trade. I suggest you stay away from this method. It will only cost you time and money. |
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Moving Average Crossovers -Price versus MA
One of the most traditional and time-tested methods of moving-average application is the price-cross-above-MA method. The relationship is a very simple one indeed. |
Traditional Moving Average System: Assets and Liabilities
Moving averages have been used with varying degrees of success by stock and futures traders for many years. Although there are literally hundreds of possible variations on the theme of moving averages, the fact is that moving-average-based trading systems, regardless of their specific type, have some distinct limitations and only a few advantages. |
Moving Average Basics
Of all systems available to traders in the futures and stock markets, the vast majority are based on moving averages, or on a variation of the moving average theme. Moving averages are not difficult to understand, relatively simple to apply, and frequently quite easy to calculate. There are many different types of moving averages. |
The Role of Artificial Intelligence
There is one potentially significant exception to everything Ive said above. Computer software and hardware technology are now advancing at such a rapid pace that the development of artificial-intelligence-based trading systems will, I feel, in the very near future, become a significant force in the marketplace. I refer here specifically to systems based on neural networks. Until recently, the computer hardware and software required to mimic the functioning of the human brain were extremely costly an, in many cases unavailable other than to government and large industry. |
What Is a Trading System?
A trading system is merely an approach to organizing facts and understanding relationships about markets. |
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