4.28 Slow Stochastic

 

Slow Stochastic was developed to minimize the number of false trading signals which the original stochastic oscillator tends to generate. This is done by slowing down the signal generation. 

 

Before we move ahead, please note that there is no difference if you use stochastic to make trading decisions based on overbought and oversold situations

 

The slow stochastic was mainly developed to minimize the false crossover signals. Here, we shall explain the differences of calculations between the slow version and the fast version. The approaches for trading remain exactly the same when you trade with the slow stochastic.

 

As a recap of the original or fast stochastic: 

 

  • The %K shows the relative position of current closing with reference to the highest and lowest of the selected period. 
  •  

  • The %D line is SMA (Simple Moving Average) of the %K for previous 3 periods. 

 

Now let’s take a look at the following chart with the stochastic oscillator once again

 

How slow stochastic helps in minimizing false signals.

 

As you can clearly see that the crossover signals for entry and exits are simply too many and many of those would prove to be false. Slow stochastic was an effort to smoothen the oscillator so that a crossover does not take place with so called temporary market noises or insignificant or temporary market moves.

 

In the following Forex chart we have brought in both brought in the slow stochastic oscillator also to have a comparison. The one on the top is the slow stochastic and the one at the bottom is the normal version.

 

Slow stochastic on a Forex chart.

 

As you would notice that the crossover signals generated by the slow stochastic are comparatively quite less than those generated by the normal version.

 

Now just check the shape of the main line (green line) of the slow stochastic and the trigger line of the normal version (red line). Did you notice that both are same? The trigger line of the normal or fast stochastic, in fact, has become the main line of the slow version or in other word the %D line of “Fast Stochastic” has become the %K line of the “Slow Stochastic”. 

 

Difference between Fast and Slow Stochastic

 
Type %K (Main line) %D (Trigger line)

Fast Stochastic (14,3) means analyzing past 14 periods for %K.

Then calculation %D which is simple moving average of %K for previous 3 periods.

Current price compared to the highest and lowest of the selected period. 3 period moving average of %K
Slow Stochastic (14,3) %D of fast version becomes %K or the main line of slow stochastic. Simple moving average of %K of slow stochastic for past 3 periods is %D.

 

  

Forex Trading Alerts subscription


Name:
Email:
Confirm Email:
4+6

We will send email alerts as soon as the Forex analysis is updated.
Request you to check the Junk (spam mail) folder immediately in case Google group mail is not received in Inbox.

Enter Forexabode Blog

Enter Forex Abode Community

Forex Rates