Interesting Info

[whodi]

Market was definitely due for a pullback. Check out the chart I put together. I have been slacking on my research lately. After seeing this nice turnaround, it was clear shorts were the way to have been going. Looking at the NAZ, its stochastic was over 90, which usually means we are definitely going south, and the blue line, which is the slow line passes under the redline, which is the fast line is a clear example this will happen. The NAZ made a higher high today than yesterday, so we may not see a total reversal, but if we saw a lower high, a complete reversal I think would definitely be in the cards. Either way, we should see some Red in the short term.

Go to chart settings and change it to candlesticks


http://finance.yahoo.com/charts#chart1:symbol=^ixic;range=6m;indicator=sma( 20,50,200)+stochasticslow+stochasticfast;charttype =candlestick;crosshair=on;logscale=on;source=undef ined

[whodi]

The key in the stochastic over 90 is the fact that both the fast and slow line were above it.

[whodi]

Here is some info to better understand. It can be a little confusing.

http://stockcharts.com/school/doku.p...tic_oscillator



Stochastic Oscillator (Fast, Slow, and Full)
Introduction
Developed by George C. Lane in the late 1950s, the Stochastic Oscillator is a momentum indicator that shows the location of the current close relative to the high/low range over a set number of periods. Closing levels that are consistently near the top of the range indicate accumulation (buying pressure) and those near the bottom of the range indicate distribution (selling pressure).

Calculation


A 14-day %K (14-period Stochastic Oscillator) would use the most recent close, the highest high over the last 14 days and the lowest low over the last 14 days. The number of periods will vary according to the sensitivity and the type of signals desired. As with RSI, 14 is a popular number of periods for calculation.

%K tells us that the close (115.38) was in the 57th percentile of the high/low range, or just above the mid-point. Because %K is a percentage or ratio, it will fluctuate between 0 and 100. A 3-day simple moving average of %K is usually plotted alongside to act as a signal or trigger line, called %D.

Slow versus Fast versus Full
There are three types of Stochastic Oscillators: Fast, Slow, and Full. The Full Stochastic is discussed later. For now, let's look at Fast versus Slow. As shown above, the Fast Stochastic Oscillator is made up of %K and %D. In order to avoid confusion between the two, I'll use %K (fast) and %D (fast) to refer to those used in the Fast Stochastic Oscillator, and %K (slow) and %D (slow) to refer to those used in the Slow Stochastic Oscillator. The driving force behind both Stochastic Oscillators is %K (fast), which is found using the formula provided above.



In the CSCO example, the Fast Stochastic Oscillator is plotted in the box just below the price plot. The thick black line represents %K (fast) and the thin red line represents %D (fast). Also called the trigger line, %D (fast) is a smoothed version of %K (fast). One method of smoothing data is to apply a moving average. To smooth %K (fast) and create %D (fast), a 3-period simple moving average was applied to %K (fast). Notice how the %K (fast) line pierces the %D (fast) line a number of times during May, June and July. To alleviate some of these false breaks and smooth %K (fast), the Slow Stochastic Oscillator was developed.

The Slow Stochastic Oscillator is plotted in the lower box: the thick black line represents %K (slow) and the thin red line represents %D (slow). To find %K (slow) in the Slow Stochastic Oscillator, a 3-day SMA was applied to %K (fast). This 3-day SMA slowed (or smoothed) the data to form a slower version of %K (fast). A close examination would reveal that %D (Fast), the thin red line in the Fast Stochastic Oscillator, is identical to %K (Slow), the thick black line in the Slow Stochastic Oscillator. To form the trigger line, or %D (slow) in the Slow Stochastic Oscillator, a 3-day SMA was applied to %K (Slow).

The Full Stochastic Oscillator takes three parameters. Just as in the Fast and Slow versions, the first parameter is the number of periods used to create the initial %K line and the last parameter is the number of periods used to create the %D (full) signal line. What's new is the additional parameter, the one in the middle. It is a "smoothing factor" for the initial %K line. The %K (full) line that gets plotted is a n-period SMA of the initial %K line (where n is equal to the middle parameter).

The Full Stochastic Oscillator is more advanced and more flexible than it's Fast and Slow cousins. You can even use it to duplicate the other versions. For example, a (14, 3) Fast Stochastic is equivalent to a (14, 1, 3) Full Stochastic and a (12, 2) Slow Stochastic is equal to a (12, 3, 2) Full Stochastic.

%K and %D Recap
%K (fast) = %K formula presented above using x periods
%D (fast) = y-day SMA of %K (fast)
%K (slow) = 3-day SMA of %K (fast)
%D (slow) = y-day SMA of %K (slow)
%K (full) = y-day SMA of %K (fast)
%D (full) = z-day SMA of %K (full)
Where x is the first parameter, y is the second parameter and (in the case of Full stochastics), z is the third parameter. In the case of Fast and Slow Stochastics, x is typically 14 and y is usually set to 3.

Use
Readings below 20 are considered oversold and readings above 80 are considered overbought. However, Lane did not believe that a reading above 80 was necessarily bearish or a reading below 20 bullish. A security can continue to rise after the Stochastic Oscillator has reached 80 and continue to fall after the Stochastic Oscillator has reached 20. Lane believed that some of the best signals occurred when the oscillator moved from overbought territory back below 80 and from oversold territory back above 20.

Buy and sell signals can also be given when %K crosses above or below %D. However, crossover signals are quite frequent and can result in a lot of whipsaws.

One of the most reliable signals is to wait for a divergence to develop from overbought or oversold levels. Once the oscillator reaches overbought levels, wait for a negative divergence to develop and then a cross below 80. This usually requires a double dip below 80 and the second dip results in the sell signal. For a buy signal, wait for a positive divergence to develop after the indicator moves below 20. This will usually require a trader to disregard the first break above 20. After the positive divergence forms, the second break above 20 confirms the divergence and a buy signal is given.

Example


In the IBM example above, it is clear that acting solely on overbought and oversold crossovers can generate false signals. Using crossovers of %D (slow) by %K (slow) can result in some good signals, but there are still whipsaws. By looking for divergences and overbought/oversold crossovers together, the 14-day Slow Stochastic Oscillator can produce fewer yet more reliable signals. The Slow Stochastic Oscillator produced 2 solid signals in IBM between Aug-99 and Mar-00. In Nov-99, a buy signal was given when the indicator formed a positive divergence and moved above 20 for the second time. Note that the double top in Nov-Dec (gray circle) was not a negative divergence – the stock continued higher after this formed. In Jan-00, a sell signal was given when a negative divergence formed and the indicator dipped below 80 for the second time.

Stochastic Oscillators and SharpCharts


In StockCharts.com's SharpCharts tool, the Slow Stochastics oscillator uses %K (slow) and the Fast Stochastics oscillator uses %K (fast). There are two options available for both fast or slow. The first Parameters value represents the number of periods used to calculate %K for each. The second value represents the number of periods used in the moving average to form %D. The defaults are 14 and 3. For the Slow Stochastics oscillator, that would imply a 14-period %K (slow) with a 3-day SMA of %K (slow) to form %D (slow).

The Full Stochastics oscillator uses three parameters: the period for %K (fast), the period for the SMA that smooths %K (fast), and the period of the SMA that forms %D (full). While the tool provides some excellent default values, I encourage you to test different variations to discover what fits with their particular investing style or what works with a particular security.

Click here to see a live example of Fast and Slow Stochastics.

For more, please read our Chart School article on how to use and interpret oscillators.






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[The Little Giants]

Now you are speaking my language Whodi. I have been following the Naz stochs closely since I posted that I was starting to gather a list of shorts. I have a bunch of shorts active right now, but I also bought a few VMW puts mid-day once the Naz went negative. I have been afraid to touch these high flyers based on their volatilty while the market was marching higher, but I saw that intraday reversal to negative territory as a clear sign that the market is finally ready to take a break (at least from my perspective.) I'm already up a significant amount on it and I'm planning on holding it since I am playing with profits. I was surprised to see you go long at the end, but it proved to be a nice trade and I'm glad it worked out for you. I'm a bull by heart, but I'm looking for red in the coming days. Great action today!

[whodi]

Thx LJ, had a real good day today, GOODS post on SEED was huge for me, thx again GOODS.I actually was getting a fullday in. Almost the 1st time in a while with everything going on right now and I had to leave for 45 minutes and when I left everything started tanking. I was so pissed off. I would of been all over VMW for shorting it again, along with SEED. When I saw that VMW dropped as far as it did, I knew there were a lot of shorts in this stock intra-day because it was having trouble before I left, so I figured with the 14 point swing, there would be a little covering at the end. I was getting real close to covering when it broke under 100 but it rebounded real quick. I like to daytrade buys near close when stocks have tanked, u can usually get a a little bounce off there lows depending on your entry point for short covering. Nice job on hitting up these shorts, you have made $$$ and will continue in my opininon. I think we will have a nice down day tomorrow, which should bang ur shorts down more. This is just the beginning for a little reversal IMO

[Goods]

Appreciate the info Whodi. And happy to see you killed on SEED.

Where I get confused is knowing the indicator signals are the real deal or a whipsaw. Having gotten burned the past couple of months, I find I'm sellling too quickly with any profit because I'm afraid it's gonna flip (and it does too often) A $90 gain turns into a $200 loss and I'm afraid it'll keep going so I sell off.

My back's against the wall a bit. I'm in no position to eat another big loss right now. At the same time, I love trading and want to do it professionally. Although, I'm the type that needs to use real funds to learn it or it won't sink in. I'm working hard man.

I have to get some winners for a cushion again or I may have to tap out for a while. All help is appreciated.