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Registered User
Joined: 4/21/2008
Posts: 81
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I understand the Worden Stochastics (WS) is another proprietary indicator which means you won't be able to share with us the secret formula. But I need a better explanation of how it arrived at those results. More specifically, Mr. Worden in his video Stock Selection Simplified talked about the benefits of his indicator as being more responsive and timely than the traditional one. The Knowledge Base says it achieves so by using a ranking system instead of a percentage system. What is being ranked - the stock prices, the changes in prices, etc? I pasted the KB explanation below. It referenced values of 1, 2, 3.5, 5, 7. What do these represent exactly? Please elaborate as much as possible on how this blackbox indicator (WS) works conceptually.
Also, please illustrate "extreme price movements" with concrete examples.
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... the Worden Stochastic assigns a specific ranking to each value in the period. The example below illustrates how a percentage range and a percentage rank would compare for a 5-period regular Stochastic and Worden Stochastic with the values 1, 2, 3.5, 5 and 7:
Percentage Rank Percentage Range
1 - 0% 0%
2 - 25% 33.3%
3.5 - 50% 58.3%
5 - 75% 83.3%
7 - 100% 100%
Since Worden Stockastic assigns a rank instead of a range value, it recovers much quicker from extreme price movements followed by laterally moving prices.
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Worden Trainer
Joined: 10/7/2004
Posts: 65,138
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I wouldn't call Worden Stochastics a black box indicator. The KB article actually describes exactly how it is calculated.
The values represent the last or closing value of whatever Indicator is the parent of the Worden Stochastic. If the parent of the Worden Stochastic is Price, the values would be the closing prices of the most recent five bars.
The Worden Stochasic just returns the Percentile Rank of the most recent closing value of the parent when compared to all of the other closing values of the parent during the Period.
It's that simple and there really isn't a better way to describe it, but let's change the numbers from the example, call them prices and give them dates to hopefully provide some additional insight.
8/11 Close = 1
8/12 Close = 2
8/13 Close = 3.5
8/14 Close = 5
8/15 Close = 7
The Worden Stochastic would return 100. Assuming the regular Stochastic only uses closing prices (which we will do from now on in these examples) the Stochastic would also return 100.
Now let's re-arrange them.
8/11 Close = 1
8/12 Close = 7
8/13 Close = 3.5
8/14 Close = 5
8/15 Close = 2
Now the Worden Stochastic would return 25 while the regular Stochastic would return 16.67. It doesn't matter how the first four prices are arranged. If you have the same 5 numbers, the only order that matters is which number is last (and what's returned by each Stochastic when each of the Prices is last is listed in the KB example you provided).
Now let's change one of the values to see how it affects things. We'll change the 7 to a 21.
8/11 Close = 1
8/12 Close = 21
8/13 Close = 3.5
8/14 Close = 5
8/15 Close = 2
This doesn't change the Worden Stochastic at all, it would still return 25 because the Rank of the most recent Price (2) hasn't changed. There is still one lower Price and 3 higher Prices and that's all that matters is where the last Price falls in the order when all of the other Prices during the Period are Ranked.
The regular Stochastic is dramatically affected however... it only returns 5 because the range of Price has increased to 20 and it is only 5% of the way up through the extremes ranges of Price during the Period. In a regular Stochastic, only the Lowest, Highest and most recent Price matter. You may wish to review the following for more information on a regular Stochastic.
Understanding Stochastics
-Bruce
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Registered User
Joined: 4/21/2008
Posts: 81
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Bruce,
Thanks for the detailed explanation. I get the concept now.
You said the value 2 has a stochastic percentage range of 33.3%, which is what KB gave you. I have a different result. I just want to check some actual numbers with you. The traditional stochastic is calculated as such:
stochastics = (last - period low) / (period high - period low)
KB shows the following:
Percentage Rank Percentage Range
1 - 0% 0%
2 - 25% 33.3%
3.5 - 50% 58.3%
5 - 75% 83.3%
7 - 100% 100%
Based on my own calculations, I don't agree with the Percentage Range results for values 2, 3.5, and 5. Here is what I got versus KB:
1 ---> (1-1)/(7-1) = 0% (correct)
2 ---> (2-1)/(7-1)=16.7% (not 33.3%)
3.5 ---> (3.5-1)/(7-1) = 41.7% (not 58.3%)
5 ---> (5-1)/(7-1) = 66.7% (not 83.3%)
7 ---> (7-1)/(7-1) = 100% (correct)
It seems like the mistakes are made by neglecting to subtract by the period low in the numerator.
Am I missing something?
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Worden Trainer
Joined: 10/7/2004
Posts: 65,138
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You are absolutely correct. I'll bring it the attention of somebody involved in maintaining the Knowledge Base.
-Bruce
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TC2000 Support Articles
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Registered User
Joined: 10/17/2007
Posts: 15
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What are the differences between "Worden Stochastics of Price" and "Worden Stochastic Candle"?
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Worden Trainer
Joined: 10/7/2004
Posts: 710
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The Worden Stochastic Candle simply uses the raw close instead of it being smoothed by a moving average (you do not have a second period to edit as you do with Worden Stochastics).
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