Strategy Central

[Walkingshadow]

<< The signal seems so quick that it seems to overcome the fact that the Stochastics, which usually fail in a trending market, still give good signals. Would this be an accurate statement? Or, what other things do you look at when the market is trending strongly, which may in turn minimize the effectiveness of the Stochastics? >>


Good point. Stochastic crossovers work best in sine wave sorts of trending markets. The weekly charts tend to give more of this kind of thing; that is, in the intermediate-term and long-term, many markets trend reasonably cyclicly, though that may not be the case on the short-term charts. That's one reason I always look at the weekly charts.

But some will trend strongly for many months from time to time. In that case, the stochastics (like the BBs) tend to have little value. In that situation, I usually just align myself with the trend, and examine things like the ADX more closely, also other technical indicators. And... I try to get a feel for when sentiment is getting too extreme in that particular market or stock.

The ADX in particular tends to give you a good feel for the strength of the trend. Also, the BB width may often be helpful. So if the BBs have been pushed wide open, and the stock or index has just traded right along one rail as it was pushed open, then eventually this becomes as unstable as when the BBs are tightly contracted.

The definition of the extremes of BB width are specific for each stock or index and must be established by looking at the history of the BB width, relative to price movement. In Stockcharts, you can plot the width as one of the indicators.

WS