1. Everything you wanted to know about Stochastic Trading …but were afraid to ask
By Ken Hodor
8/18/10

2. Disclaimer Please realize your mileage may vary.
These results are only for instructional purposes

3. Only Indicators Required
Market direction up/down/sideways
Trigger to get you in
Trigger to get you out

4. Market Direction Moving Average Support / resistance
Trendline (my personal favorite)
Connecting simple low or high
Regression channel
KMovingAverage (my souped-up version)

5. Various Entry Triggers
Stochastic
Wilder RSI
Williams %R
Woodies CCI
kStochastic Souped-up version by Hodorific

6. Exit Triggers Stochastic Adaptive Moving Average with Stochastic
Allows you to stay in the trade much longer
Breaks through trendline (break trend)
Allows us to trade above this emergency stop

7. Compare Triggers

8. What Are Stochastics?
The ratio of the distance between the close and the lowest low to the total range
Lowest price over past bars—call this LL
Highest price over past bars—call this HH
What is the closing price relative to these values?
Stochastic = (Close – LowestLow)/(HighestHigh-LowestLow)

9. FastK, FastD, SlowK, SlowD
Fast means there is no averaging going on
Slow smooths results using averaging
I use only SlowK and SlowD
Average
The Same
Average
FastK
FastD
SlowK
SlowD

10. Measured Risk
After a buy signal, measure the distance to your emergency exit trendline.

11. Measuring Risk

12. Subtleties of Stochastics
Divergence
Stochastic usually correct
Price capitulates and follows Stochastic lead
Phantom buys
Stochastic changes Red to Green just below 50%
Greater risk but many times worth the gain.

13. Price Stochastic Divergence

14. Phantom Buys

15. How to choose Stochastic Length?
Decide the cycles you would like to catch
Buy at low point
Sell at high point
Count number of bars from top to bottom
Use the center of rounded top
Use the center of rounded bottom
Enter this number in kStochastic
…and Voila!

16. Stochastic Length Example

17. How to use Kstochastic on TOS?
Enter an Indicator/Study
First import kStochastic1
Insert Study in your chart
Entering a Stochastic Alert
Type it in…or cut and paste
Subsequently click on old alert
Entering an “automated” Stochastic Buy

18. Import Study

19. Load Study

20. Stochastic Alerts We Want

21. Alert Entry

22. Alert Book

23. For The Advanced Auto-Trading
Don’t miss opportunities
Autotrading eliminates emotion
It brings with it a new concern of turning over control to your computer
This does not use TOS Prodigio

24. Auto Trade Stochastic

25. Create AutoTrade Order

26. Ready to AutoTrade…Hit Send

27. Probability of profit Experience going with the trend 80%
Experience going against the trend 50% best case
Experience not entering immediately drops below 80% quickly.

28. Some Results per Unit IRA Retail Forex Equity SSO EURUSD
Probability of Win
83%
73%
Average Win
342 84
$3,144
Average Loss
($122)
($37)
($250)
Expectancy
2.36
1.38
10.21
Return on Margin (ROM)
35%
480%
Time Period
1 year
2 months

29. Summary of What We Covered
What is the Stochastic?
When to use it?
Why you might want to use it?
How to use it on TOS for:
Discretionary trading as an Indicator
As an Alerts
AutoTrading