vict0rchan
5 posts
msg #151068
- Ignore vict0rchan
modified |
3/4/2020 7:00:11 AM
Stochastics is a useful indicator to see where the current close is in relation to the recent range, however, it breaks down when there is a large gap up or down.
Take this example:
Day 1: High 22, Low 21, Close 21
Day 2: High 16, Low 15
Day 3: High 17, Low 16
Day 4: High 17, Low 15, Close 17
3-day Stochastics at Day 4
= [(Close minus 3-Day Low) / 3-Day Range] x 100
= [(17 - 15) / (17 - 15)] x 100
= 100
While it is true that Day 4 closes at the "3-day high" it completely ignores that Day 2 gaps down heavily from Day 1.
If you take the "true high" of Day 2 as the close of Day 1:
True 3-day Stochastics at Day 4
= [(17 - 15) / (21 - 15)] x 100
= 33
It reflects more truly about what is really going on in the market. (For those who is familiar with the Average True Range, it is the same concept here.)
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