• Skip to primary navigation
  • Skip to content
  • Skip to primary sidebar
  • Skip to footer
Daniels Trading

Trade Futures, Spreads and Options with Confidence.

Top Navigation

  • Open a Futures Account
  • Sign Up
  • Log in
  • 1.800.800.3840

Primary Navigation Menu

  • About
    • Who We Are
    • Services
    • Risk Disclosure
    • COVID-19
  • Trade
    • Broker-Assisted
    • Self-Directed / Online
    • Request Pricing
  • Hedge
    • Ag Marketing Plan
    • WASDE Analysis
    • Grain Resources
    • Livestock / Dairy Resources
    • Request Pricing
  • Invest
    • Automated Strategies
    • Managed Futures
    • Request Pricing
  • Advisories
    • GENERAL / FUNDAMENTAL
      • DT Newsletter
      • Insider Market Advisory
      • Turner’s Take Newsletter & Podcast
    • TECHNICAL ANALYSIS
      • The Cullen Outlook
      • Data Feed Trade
      • Jarboe Trading Journal
      • Trade Spotlight
    • AG MARKETING
      • Cattleman’s Advisory
      • Technical Ag Knowledge
      • Turner’s Take Ag Marketing
    • THIRD-PARTY RESOURCES
      • CFRN
      • Moore Research Center, Inc. (MRCI)
      • OptionWorks®
      • TASMarketProfile.com
  • Education
    • CME Group Resource Center
    • CME Group Offers
    • Small Exchange Resources
    • Guides
    • Frequently Asked Questions
    • Order Entry Handbook
  • Blog
    • Futures 101
    • Ag Marketing
    • Tips & Strategies
    • Trading Advisories
  • Resources
    • Trading Software
    • Quotes and Charts
    • Futures Calendars
    • Contract Specifications
    • Margin Requirements
    • Futures Calculator
  • Accounts
    • Apply
    • Access My Account
    • Funding
  • Contact
Home / Education / Technical Analysis Learning Center / Slow Stochastic

Slow Stochastic

The Stochastic study (SSTOC), developed by George Lane, is an oscillator that compares the difference between the closing trade price of an instrument and the period low relative to the trading range over an observation time period. With the help of this study, the position of the price quotation within the prevailing fluctuation margins is quantified.

The Slow Stochastic is comprised of two lines, known as the %K line and the %D line. These oscillate between 0% and 100%. The %K line is calculated from the difference between today’s closing price and the period low, divided by the difference between the period high (Highest High) and the period low (Lowest Low). The %D line represent a 3 Day Moving Average of the %K line, and thus reacts less sensitively than the %K line.

Download our free guide, Futures Trading: Technical Analysis for Beginners,  today!

Properties

%K. The number of periods in the chart. If the chart displays daily data, then %K Period denotes days; in weekly charts, the period will stand for weeks, and so on. The application uses a default value of 14.

%D. The number of periods used in the Moving Average calculation. The application uses a default of 3.

Smoothing Period. The number of periods used in the Moving Average calculation for the Slow Stochastic study. The application uses a default of 3.

Interpretation

Dr. George C. Lane is the author of the Stochastic study. His basic premise is as follows: during periods of price decreases, daily closes tend to accumulate near the extreme lows of the day. Periods of price increases tend to show closes accumulating near the extreme highs of the day. The Stochastic study is an oscillator designed to indicate oversold and overbought market conditions.

The Stochastic study works similarly to the Relative Strength Index, although the Stochastic ranges between the values of 0% and 100%, and its overbought/oversold boundaries are wider, making this oscillator more volatile. The Stochastic also generates two lines instead of one.

The Stochastic study has overbought and oversold zones. Dr. Lane suggests using 80 as the overbought and oversold zones. Some traders, however, prefer 75 and 25.

Dr. Lane also contends the most important signal is the divergence between %D and the contract. He explains divergence as the process where the Stochastic %D line makes a series of lower highs while the commodity makes a series of higher highs. This signals an overbought market. An oversold market exhibits a series of lower lows while the %D makes a series of higher lows. When one of these patterns appear, you should anticipate a market signal. Initiate a market position when the %K crosses the %D from the right-hand side. A right-hand crossover is when the %D bottoms or tops and moves higher or lower and the %K crosses the %D line. According to Dr. Lane, your most reliable trades occur with divergence and when the %D is between 10 and 15 for a buy signal and between 85 and 90 for a sell signal.

Literature

Lane, Dr. George C. Stochastics. Trading Strategies Futures Symposium International. 1984.

Lane, Dr. George C. Lane’s Stochastics. Technical Analysis of Stocks and Commodities magazine. pp 87-90. May/June, 1984.

Murphy, John J. Technical Analysis of the Futures Markets. New York Institute of Finance. Englewood Cliffs, NJ. 1986.

Murphy, John J. The Visual Investor. New York, NY: John Wiley & Sons, Inc. 1996.

Le Beau C., Lucas D. W. Computer Analysis of the Futures Market. 1992.

Kaufman, Perry J. The New Commodity Trading System and Methods. 1987.

Content Source: FutureSource

Read our guide, Futures Trading: Technical Analysis for Beginners

View Other Technical Analysis Studies

  • Bollinger Bands
  • Commodity Channel Index
  • Crack Spread
  • Crush Spread
  • Default
  • Directional Movement Index
  • Envelope
  • Exponential Moving Average
  • Exponential Oscillator
  • High Low Moving Average
  • Highest High / Lowest Low
  • Historic Volatility
  • Keltner Channel
  • Least Squares Linear Regression
  • Line Oscillator
  • Momentum
  • Moving Average
  • Moving Average Convergence Divergence
  • Moving Standard Deviation
  • Open Interest
  • Oscillator
  • Parabolic Stop and Reversal
  • Rate of Change
  • Relative Strength Index
  • Smoothed Moving Average
  • Smoothed Oscillator
  • Stochastic
  • Variable Moving Average
  • Volume
  • Volume and Open Interest
  • Weighted Close
  • Williams’ %R

Primary Sidebar

Tips & Strategies

blog-header

How to Harness the Power of Moving Average Crossovers

A moving average is one of the most popular technical indicators. Traders frequently use them to discern trends, identify reversals, and locate support and resistance levels. Let’s look at these powerful technical tools and one unique event: the moving average crossover. What Is a Moving Average Crossover? Moving average (MA) is a “calculation used to… Read more.

Advanced Techniques for Futures Trading: Order Carry Over vs. End of Day Cancellation

Technical Analysis of Stocks: Understand the Pros and Cons

In today’s equities marketplace, the technical analysis of stocks is a popular discipline. Each day, millions of market participants use tools, indicators, and price action as primary decision-making mechanisms. Read on to learn more about the advantages and disadvantages of stock market technical analysis. The Technical Analysis of Stocks Technical analysis is the study of… Read more.

Probabilistic Modeling for Trending Markets

Many mathematicians start with the same, single assumption when they commence any probabilistic modeling: the probability of a market moving higher or lower on any given day is 50%. Though this may seem oversimplified…

More Tips & Strategies

  • Will the Russia-Ukraine War Cause a U.S. Recession?
  • What Is the Best Way to Sell Stock Options?
  • What Are the Four Risks of Trading Stock Options?
  • Understanding the Impact That Stock Option Time Decay Has on Stock Options
  • Bearish and Bullish Options Trading Strategies
  • How High Will Crude Oil Prices Go?
Trustpilot

Footer

Site Navigation

  • Frequently Asked Questions
  • About Us
  • Customer Reviews
  • Contact Us
  • Futures Blog
  • Open a Futures Trading Account
  • Media Resources
  • Fund Your Account
  • Legal Notices

Contact Us

StoneX Financial Inc.
Daniels Trading Division
230 South LaSalle Suite 10-500
Chicago, IL 60604
+1.312.706.7600 Local / Int'l
+1.800.800.3840 Toll-Free
+1.312.706.7605 Fax

Connect with Us

Trustpilot
Risk Disclosure
  • Risk Disclosure
  • Privacy Policy
  • California Residents Privacy Notice
  • Terms of Use
  • Back to top