To understand the behavior of Stochastics more deeply, it is worth looking at the theoretical aspects of formation of waves Elliott. Often, the study was postponed to a schedule, by adjusting the parameters, while not understanding how there are some trading signals. Advanced traders can go further and deeper into mathematics formula strategic tool. But the fundamental behavior of the indicator is not understood well enough. This article will help you better understand Stochastics through the original approach.
The basic concept of Elliott wave theory is that market action is accompanied by reaction, and there are 5 waves of the main trend, followed by a 3 wave correction. Since this model has been repeatedly observed in the markets, there will be a theoretical schedule, based on these principles, so that you can analyze Stochastics, without interference from the market "noise" obscures its fundamental behavior.
Different characteristics can be found at the 9-bar slow Stochastics, applied to the theoretical time.
Analysis of smaller 5-wave trend: (blue, small numbers 1-2-3-4-5)
1) The most rapid rise through the Stochastics% K (blue line) occurs at lower wave 1. % K increased from levels below 20 to 70.
2) A smaller wave of 2% K line has led to the recovery line% D (red line), but both are still above 50.
3) The smaller wave 3 is Stochastics above, with the subsequent achievement of% K at a higher maximum. In
% K real world will often reach a level of 80, but rarely 90. Please note that this is a smaller wave 3, which is% K to its highest peak!
4) The smaller wave 4 was the reason for the% K line crossed the% D line down from its higher maximum. This intersection is a false signal to traders who are too often come across. The opening short positions because of the spread of wave 3 is premature, and your stop-order, which is located immediately above the top of wave 3 will be vulnerable, with the final push to the summit, to a lesser wave 5. Psychologically, traders tend to ignore the signal from wave 5 of the loss of short positions taken by the waves 3.
5) The smaller wave 5 is the reason why the% K rises again, often crossing the% D line back up, but the market is short of the length of the trend to raise the% K to a higher maximum.
When the% K line turns down and crosses the% D line for the second time, this is the signal to sell. Please note that the divergence should be found, where the price reaches a new peak, but this does not happen Stochastics. Marked divergence in the theoretical graph short red lines.
Analysis of 3-wave correction lesser: (blue letters abc)
a) The smaller wave and returned to the previous level of support for smaller wave 4. But the decline in line% K significantly, which falls from a higher to a maximum of 30. This rapid drop like a rapid raise that occurred in the lower wave 1.
b) The smaller wave b is the restoration of the Fibonacci and the back-to-5. In the example, the price stops above the waves 3. The impact on the% K line is a rally back to the line% D, but both lines are below 50.
c) The smaller wave c% K line is the new minimum level below 30. Example below shows the decline in the level of 20, which would be unusual for a real market for corrective wave c. Please note: the divergence at this time does not arise. Therefore, the signal for opening a long position comes at the first crossing of the line% K above the% D. This is shown in the example on the main waves of 2 and 4 (red digits), where the market meets the long-term trend line support, shown in orange.
Summarize:
The process begins again and again, because Stochastics behaves similarly to the major waves 3 and 5, as well as it did for the primary wave 1. Abc correction of the primary wave 4 will be the same as for the main wave 2. The ideal setting for the entrance to the short position arises after the main wave is formed 5, where the wave will be less than 2 of the first stage of a major new trend correction. This place is allocated to a circle of yellow color.
Please note: Stochastics have three lamps with divergence at the end of the main waves of 1, 3 and 5, marked in red. Turn of Stochastics at the end of the two reaction waves 2 and 4 had no divergence. Look for a model that will help you determine the 5th primary Elliott wave. Signal divergence at the end of wave 5 is the ideal place to enter into a short position after the main ascending trend, or long after the main downward trend.
Type of averaging:
Now that the fundamental behavior of Stochastics understood as the Elliott waves develop in the market, will use a theoretical schedule to explore the effects of various parameters in the formula for Stochastics. The first solution is to choose what medium to use in calculations Stochastics - exponential or simple. Both examples shown in the following schedule using the same parameters of the length of period,% K and% D - 9, 3, 3.
Look at the patterns on both schedules. We see the same basic behavior and there and there, but is more easy to read Stochastics with exponential average. Personally, I believe that it is better to use the exponential average for Stochastics.
Setting the length of the period:
Now look at the parameters of length of period. This parameter controls the number of investigated bars,
which are taken to determine the highest maximum and lowest minimum, or range for the selected period. "Clean" Stochastics calculated by measuring where the latest price on the range of the test period.
In the examples, the parameters% K and% D are 3 and 3, using the exponential average.
The smaller the number of bars is taken into account, the greater the fluctuation in Stochastics. A large number of bars decreases the amplitude of the oscillations, which makes it more difficult to see the divergence. Pay attention: choose the parameters of the length of the period, which would be half the average length of the main waves.
Theoretical schedule has 24 bars in the main trend wave, and 13 bars in major corrective wave. The average of these two waves is 18 bars. Thus, the length of a period of 9 bars provide the best option Stochastics.
Parameter% K:
% K line is the average of the calculated net value Stochastics. If the value of net Stochastics not offset by averaging, it is called rapid% K. Values Stochastics, which are offset by averaging, referred to as the slow% K. These examples show the impact parameter for 9% K-Bar Stochastics using the parameter 3 for the% D and applying the exponential average.
Net Stochastics or fast% K is varies, and therefore rarely used. For large values of the parameter% K, the amplitude of oscillation decreases Stochastics. The most appropriate use of the values 3 or 5 as the parameter% K.
Parameter% D:
% D line is the average of the line of% K. Slow% K line is the average of the net Stochastics, which makes the slow%
D line of the average of the average. The following examples use the 9-bar Stochastics with a value of 3 as a parameter for the% K and using the exponential average.
9-Bar Stochastics with a value of 3 as a parameter for the% K and using the exponential average
The higher the parameter% D, the more will be fluctuations from slow% D. It is thus to select the setting to get the signal from Perez cheniya lines% K and% D for one or two bars later turn. I recommend using 3 as a parameter for the% D.
So, in this analysis of the fundamental behavior of Stochastics will be considered completed. Theoretical schedule, we had great help in understanding the basic principles of Stochastics. In practice, of course, should make an amendment to the market "noise" on the basic principles of conduct in any event, will be the same.
The basic concept of Elliott wave theory is that market action is accompanied by reaction, and there are 5 waves of the main trend, followed by a 3 wave correction. Since this model has been repeatedly observed in the markets, there will be a theoretical schedule, based on these principles, so that you can analyze Stochastics, without interference from the market "noise" obscures its fundamental behavior.
Different characteristics can be found at the 9-bar slow Stochastics, applied to the theoretical time.Analysis of smaller 5-wave trend: (blue, small numbers 1-2-3-4-5)
1) The most rapid rise through the Stochastics% K (blue line) occurs at lower wave 1. % K increased from levels below 20 to 70.
2) A smaller wave of 2% K line has led to the recovery line% D (red line), but both are still above 50.
3) The smaller wave 3 is Stochastics above, with the subsequent achievement of% K at a higher maximum. In
% K real world will often reach a level of 80, but rarely 90. Please note that this is a smaller wave 3, which is% K to its highest peak!
4) The smaller wave 4 was the reason for the% K line crossed the% D line down from its higher maximum. This intersection is a false signal to traders who are too often come across. The opening short positions because of the spread of wave 3 is premature, and your stop-order, which is located immediately above the top of wave 3 will be vulnerable, with the final push to the summit, to a lesser wave 5. Psychologically, traders tend to ignore the signal from wave 5 of the loss of short positions taken by the waves 3.
5) The smaller wave 5 is the reason why the% K rises again, often crossing the% D line back up, but the market is short of the length of the trend to raise the% K to a higher maximum.
When the% K line turns down and crosses the% D line for the second time, this is the signal to sell. Please note that the divergence should be found, where the price reaches a new peak, but this does not happen Stochastics. Marked divergence in the theoretical graph short red lines.
Analysis of 3-wave correction lesser: (blue letters abc)
a) The smaller wave and returned to the previous level of support for smaller wave 4. But the decline in line% K significantly, which falls from a higher to a maximum of 30. This rapid drop like a rapid raise that occurred in the lower wave 1.
b) The smaller wave b is the restoration of the Fibonacci and the back-to-5. In the example, the price stops above the waves 3. The impact on the% K line is a rally back to the line% D, but both lines are below 50.
c) The smaller wave c% K line is the new minimum level below 30. Example below shows the decline in the level of 20, which would be unusual for a real market for corrective wave c. Please note: the divergence at this time does not arise. Therefore, the signal for opening a long position comes at the first crossing of the line% K above the% D. This is shown in the example on the main waves of 2 and 4 (red digits), where the market meets the long-term trend line support, shown in orange.
Summarize:
The process begins again and again, because Stochastics behaves similarly to the major waves 3 and 5, as well as it did for the primary wave 1. Abc correction of the primary wave 4 will be the same as for the main wave 2. The ideal setting for the entrance to the short position arises after the main wave is formed 5, where the wave will be less than 2 of the first stage of a major new trend correction. This place is allocated to a circle of yellow color.
Please note: Stochastics have three lamps with divergence at the end of the main waves of 1, 3 and 5, marked in red. Turn of Stochastics at the end of the two reaction waves 2 and 4 had no divergence. Look for a model that will help you determine the 5th primary Elliott wave. Signal divergence at the end of wave 5 is the ideal place to enter into a short position after the main ascending trend, or long after the main downward trend.
Type of averaging:
Now that the fundamental behavior of Stochastics understood as the Elliott waves develop in the market, will use a theoretical schedule to explore the effects of various parameters in the formula for Stochastics. The first solution is to choose what medium to use in calculations Stochastics - exponential or simple. Both examples shown in the following schedule using the same parameters of the length of period,% K and% D - 9, 3, 3.
Look at the patterns on both schedules. We see the same basic behavior and there and there, but is more easy to read Stochastics with exponential average. Personally, I believe that it is better to use the exponential average for Stochastics.Setting the length of the period:
Now look at the parameters of length of period. This parameter controls the number of investigated bars,
which are taken to determine the highest maximum and lowest minimum, or range for the selected period. "Clean" Stochastics calculated by measuring where the latest price on the range of the test period.
Net Stochastics = 100 * (Last price - a minimum period) / period range.
In the examples, the parameters% K and% D are 3 and 3, using the exponential average.
The smaller the number of bars is taken into account, the greater the fluctuation in Stochastics. A large number of bars decreases the amplitude of the oscillations, which makes it more difficult to see the divergence. Pay attention: choose the parameters of the length of the period, which would be half the average length of the main waves.Theoretical schedule has 24 bars in the main trend wave, and 13 bars in major corrective wave. The average of these two waves is 18 bars. Thus, the length of a period of 9 bars provide the best option Stochastics.
Parameter% K:
% K line is the average of the calculated net value Stochastics. If the value of net Stochastics not offset by averaging, it is called rapid% K. Values Stochastics, which are offset by averaging, referred to as the slow% K. These examples show the impact parameter for 9% K-Bar Stochastics using the parameter 3 for the% D and applying the exponential average.
Net Stochastics or fast% K is varies, and therefore rarely used. For large values of the parameter% K, the amplitude of oscillation decreases Stochastics. The most appropriate use of the values 3 or 5 as the parameter% K.Parameter% D:
% D line is the average of the line of% K. Slow% K line is the average of the net Stochastics, which makes the slow%
D line of the average of the average. The following examples use the 9-bar Stochastics with a value of 3 as a parameter for the% K and using the exponential average.9-Bar Stochastics with a value of 3 as a parameter for the% K and using the exponential average
The higher the parameter% D, the more will be fluctuations from slow% D. It is thus to select the setting to get the signal from Perez cheniya lines% K and% D for one or two bars later turn. I recommend using 3 as a parameter for the% D.
So, in this analysis of the fundamental behavior of Stochastics will be considered completed. Theoretical schedule, we had great help in understanding the basic principles of Stochastics. In practice, of course, should make an amendment to the market "noise" on the basic principles of conduct in any event, will be the same.
Forex Magazine
based on www.ensignsoftware.com
based on www.ensignsoftware.com
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