Hi all, thanks in advance for your time. I’m currently working out how to best use the Stochastic Indicator for Binary Trading. I understand that the 80% and 20% are overbought/oversold levels and that the %K line is the fast stochastic (blue line) and the % D line is the slow stochastic (red line) and that the K line tracks current market price and the D line is simply the signal line.
However if for example I was using settings 5, 3, 3
Am I correct in understanding that the 5 is based on the average price of the last 5 days? Is anyone able to confirm the meaning of the 3 and 3 settings?
I’ve researched and researched but can’t find any real explanation. Any help and guidance will be greatly appreciated.
The “5” is the 5-period fast %K which means that it uses the most recent close, the highest high over the last 5 periods, and the lowest low over the last 5 periods.
The “3” is the fast %K smoothed with 3-period SMA = slow %K.
And the last “3” is a 3-period SMA of the slow %K.
Just keep to the standard settings. And at best, Stochastic is just a signal of overbought or oversold positions which means you should keep watch on price movement trends, as it could stay there for weeks.
I have tried 14 -3 -1 with 23 & 90. Whether it’s any better, I didn’t give it long enough.