Trading with Slow Stochastic Oscillator, Slow Stochastic

Wednesday, November 25, 2009

Trading with Slow Stochastic Oscillator

Slow stochastic oscillator is created to reduce the sensitivity of fast stochastic oscillator that gives too many trading signals. Slow stochastic oscillator is created by smoothing the fast stochastic oscillator; applying a three period moving average to fast %K. That simply means that the slow %K is exactly similar to the %D, the signal line, of the fast stochastic indicator.

The %D of slow stochastic oscillator is created by applying an additional three period moving average to slow %K. The standard period for calculating slow stochastic oscillator is also 14 days; but traders can change it to get custom results. Trading with the slow stochastic oscillator is exactly the same as the fast stochastic; the only difference is the reduced sensitivity which gives lesser number of accurate signals.

Buy signals are generated when %K crosses above %D and sell signals are generated when %K crosses below %D.
Buy signals are generated on bullish divergences on %D (first trough is below oversold level) and sell signals are generated on bearish divergences on %D (first peak is above overbought level).
The trough and peak formations are also good indicators, narrow troughs indicate that bears are weak and the following rally can be strong; similarly narrow tops indicate that bulls are weak and the following correction can be strong.