"WallStreet" Surfers

[Nilbud]

Are Price Channels Similar to Stochastics?
Price Channels are similar to the Stochastic Oscillator when one considers what the Stochastic Oscillator measures. This momentum oscillator measures the level of the close relative to the high-low range over a given period of time, say 20 days. The Stochastic Oscillator is relatively high when the close is near the high end of its 20-day range and low when the Stochastic Oscillator is near the low end of this range. Put in numbers, the Stochastic Oscillator is relatively high above 80 and relatively low below 20.
Let's compare the 20-day Fast Stochastic Oscillator with 20-day Price Channels. The Stochastic Oscillator will usually be above 80 when prices exceed the upper Price Channel. Similarly, the 20-day Fast Stochastic Oscillator will usually be below 20 when prices move below the lower Price Channel. There is a slight timing difference because Price Channel data ends with the prior period. Stochastic Oscillator data, on the other hand, ends with the current period. This means the Stochastic Oscillator includes the most recent price action, but Price Channels do not. Nevertheless, the two measure pretty much the same thing.

The Dow Industrials SPDR (DIA) chart shows 20-day Price Channels (pink) with the 20-day Fast Stochastic Oscillator. Prices are near the upper channel line when the Stochastic Oscillator is overbought (red lines). Prices are near the lower channel line when the Stochastic Oscillator is oversold (green lines). Prices are usually below the centerline of the Price Channel when the Stochastic Oscillator is below 50, which is its centerline (early June). Prices are usually above the centerline when the Stochastic Oscillator is above 50.