Pick The Right Settings On Your Stochastic Oscillator (SPY, AAL).
Selecting The Ideal Setups
Pick the most efficient variables for your trading design by deciding just how much noise you’re prepared to accept with the data.
SPDR S&P 500 Count On (SPY) shows various Stochastics impacts, depending on variables.
- Fast K% – measures the closing price compared to specified lookback periods.
- Full K% or K% slows down Fast K% with a Simple Moving Average (SMA).
- Full D% or D% adds a second smoothing average.
- Lower Fast K%, K% and D% variables = a shorter-term lookback period with less smoothing
- Higher Fast K%, K% and D% variables = a longer-term lookback period with greater smoothing
Shorter term variables elicit earlier signals with greater noise levels while longer term variables generate later signals with lower sound levels, except at significant market transforms when time frameworks tend to line up, causing identically-timed signals throughout significant inputs.
Choose the most effective variables for your trading style by deciding how much noise you’re willing to accept with the data. Understand that whatever you choose, the more experience you have with the indicator will improve your recognition of reliable signals. Short-term market players tend to choose low settings for all variables because it gives them earlier signals in the highly competitive intraday market environment. Long-term market timers tend to choose high settings for all variables because the highly smoothed output only reacts to major changes in price action. (For related reading, see: Stochastics: An Accurate Buy and Sell Indicator).