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Registered User
Joined: 7/26/2005
Posts: 109
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I have a system of buying stocks when the stochastic is below 20 and selling when they are above 80. This seems to work well in most cases. But every so often bad news hits and the stock may drop say 30%. Will using the Average true range as a stop help me with this.
Any help or advise with this system would be great.
Thanks
WJD
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Registered User
Joined: 1/28/2005
Posts: 6,049
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You need to find higher quality stocks.
No stock should be dropping 30% as part of its
normal price movement.
I would assume you are talking about a gap down at the open.
In that case no stop method will help.
If you are talking about 30% over time than any stop method
will help.
If it is based on ATR or just a fixed percent.
Thanks
diceman
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Registered User
Joined: 7/8/2006
Posts: 20
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how about to confirm stochastics with some other indicators?
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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The real question to answer is what you are confirming?
What does stochastics measure? What does it mean when it gets below 20 or above 80?
Check out this video: Sorting with Stochastics
- Craig
Here to Help!
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Registered User
Joined: 7/8/2006
Posts: 20
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if we consider stochastics as the only indicator in this case as overbought/oversold indicator (under 20 the stock is in an oversold territory over 80 it is in an overbought territory is in it right?)
how about if the stock has high volatility...and the stochastic as indicator will not be efficient as it would be in a flat o trendy condition?
Do not we need at least another indicator such OBV or CV or RSI to confirm the trend of the stock?
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Registered User
Joined: 7/26/2005
Posts: 109
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I have been using a indicator called CCI, but now that I thank about it RSI might be a better fit.
Guys I have tried so many different trading systems. The
only one that seems to work for me is stochastic. I have study so many charts as i'm sure we all have and the one constance is after it is over sold it will go to over bought.I do have a habit of buying small caps. My holding time is about 5 days to 2 weeks some times longer. When the stock is in oversold I buy in 3 lots (down), when it hits over bought
I put in a trailing stop. I try to pick my stocks by using Starmine for up grades.
Any help or comments are welcome.
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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Any system that works and makes you money is a good system. I only recommend you check out the video I linked above so you understand WHY stochastics goes above 80 or below 20.
- Craig
Here to Help!
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Registered User
Joined: 3/19/2005
Posts: 12
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I too use a variant of this. However, deciding by this one indicator alone I find insufficient. Often the daily view is noise unless you are trading on a few % points. I find a better result if I use a weekly view. I think it takes some time for sufficient volume to develop to confirm if you have an inflection point. I confirm the 20 exit or 80 entry by first tsv and money stream divergence positive or negative from the moving averages. Additionally, I use TSV divergence from RSI to indicate the direction of the market. Finally, watch BOP and volume. They indicate power or weakness in the movement. Often a weekly or monthly view will show stochastics at or below 20 or above 80 for significant time. If you are in a bear market, you can be below 20 for many quarters and then see a large drop over time. If in a bull market, selling at 80 you can miss significant additional upside. This is why additional indicators are needed.
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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wjd,
You inspired me to create this thread: Stochatics and True Markers exercise
It might be an interesting exercise for you to explore.
- Craig
Here to Help!
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Registered User
Joined: 1/28/2005
Posts: 6,049
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For those interested in "marking" a chart when this happens.
You can create the custom indicator:
ABS(STOC20.3<20)*(AVGL2)
Put it in the Top window.
Select Plot using price scale
Smoothing Average 1
(I would choose color RED and Wide)
This will plot the 2bar avg low in red when Stoc20(with a simple smoothing of 3)
is below 20.
(all of these values can be adjusted to meet your needs)
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To create a "high" version you could use:
ABS(STOC20.3>80)*(AVGH2)
create this the same way in another color.
(this will plot the 2bar avg of high when over 80)
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These techniques can be found in my post:
Indicator Color, Visuals, and MACD.
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Thanks
diceman
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