Questions about Stochastic Oscillator / Divergence


I was wondering, from your experience, which stochastic settings are the best given that I use it with Daily or Weekly charts?

I am currently using 10,3,3 Exponential on Daily and Weekly, can I adjust these settings to make things better anyway?

Please consider that I want to use a suitable stochastic to spot divergence between Sto and Price on daily / weekly chart. With that, I also use the stochastic crosses to know the market direction.

So, would the settings really matter? If so, what settings you find best for Daily and/or Weekly?

Another question, what do you think about trading divergence with compounding lot size, where you have to add to your trades as they run against you waiting for a pullback that’s identified by divergence on chart. Does this really win? is it all about how good you manage your money?

I read about that strategy somewhere, but I also read that’s adding to your unrealized losses.

Thanks in advance.

Hi Topchess,

The system i use basically makes use of Stochastics, Divergence off of the MACD histogram and S/R off daily charts or higher.

I use 9,3,3 settings for my stochastics but i think that has just stuck because i know of a few traders who use those settings and it worked well for them. No real reason other than that.

In general, i don’t think it really matters though. Whatever system you are using, you will not be that much better off using one setting over the other, unless they are drastically different. I’ve read in so many places that optimizing your system this way is a fool’s game. If, for example, you use a moving average cross-over or a stochastic cross over, you will find the results of your system more or less similar no matter the setting. In other words, to expect one setting to generate an unprofitable system but a different setting to all of a sudden turn the system around into a profitable one is not reasonable in my opinion.

As for compounding (i think you mean scaling in) a position that moves against you in the presence of divergence…i think this could be a good practice and should not be confused with averaging down losers.

Averaging down a loser should be discouraged at all costs and will eventually wind you up in the poor house. However, since divergence can persist for quite some time, it could be a great method to scale into the position a bit at a time for as long as it persists. If you normally trade 5 lots, open up 1 lot as soon as you see the divergence. If it moves against you open up another lot at some predetermined point BUT use the same stop as your first fifth. Always maintain the same stop, NEVER increase your stop loss for each scale in. Eventually, if the move goes into your favor, you’ll have a beautifully averaged entry and a great potential profit, more than you would have had entering all at one place.

You should also have a plan for scaling into the full position if it begins to move in your favor right away. I think this is a GREAT method

Just to quickly add to my previous post that i have found divergence set-ups to be extremely reliable when they occur near or at significant points of support and resistance on the Daily charts and higher. This is how i use divergence and when it occurs at these levels i find they move in my favor right away, eliminating the need for scaling in when it goes against you.

Just my 2 pips worth

Much appreciated. :slight_smile:

I will have to study a plan for my entries and exits with divergence, It’s very reliable but money management can turn it a loser that’s why I should put all efforts to come up with a good money management.

Hello Topchess

Let me tell you how i use divergence.I use it for exit point not for entry point.For entry point i use corection on a strong trend or consolidation and divergence for exit point.

Best regards



I use stochastic 8,3,3 on the daily and the weekly charts. I have also had good results using 5,3,3 on the interday charts.

As someone pointed out, i don’t know if the settings matter that much other then smoothng out STO.

here is something that i wrote about The Stochastic Momentum Index (SMI)
in “Daily 3 Stochastic System”

SMI is a smother version of George Lane�s original Stochastic Oscillator. The Stochastic Momentum Index (SMI) was developed by William Blau and was first introduced in the January 1993 issue of �Technical Analysis of Stocks & Commodities magazine� V.11:1 (11-18): Stochastic Momentum by William Blau get the article here!

The formula for Stochastic Momentum Index makes for a much smoother oscillator or less erratic then the same period Stochastic Oscillator. In order to smooth out George Lane�s Stochastic Oscillator, most people would stretch the period say from 5, 3, 3 to 10, 3, 3. So the Stochastic Momentum Index is a naturally smoother indicator at a quicker setting then the Stochastic Oscillator.