The Stochastic Oscillator is a centered momentum oscillator.  It is a percentile that shows a recent close in relationship to a high and low over a certain period of time.  Stochastics were originally designed for stocks in a trading market.  Although the parameters can be tweaked to give good results in almost any market, the default values reflect good results with stocks over the past 10 years.

 

Our built-in stochastic system uses convergence for signals.  Positive convergence of a certain strength (called a swing factor), during a certain number of bars, and rising generate a long signal.  The opposite exits a long position.  Our system does not take short trades at all.

 

The conditions used to generate a long signal are as follows:

 

•There is a positive convergence that develops below a %K(Full) of 22.

•The %K(Full) is above 22 (this can be customized) and has started rising above %K(Slow) over the past 4 days.

•The convergence must take place over a certain time.

•The convergence must include highs and lows of a certain profundity to avoid meaningless signals.

 

The conditions for selling are much the same, except the convergence must be negative and falling below 78 (also customizable).  Below are examples of both signals.  Note the positive and negative convergences and rising or falling %K(Full).

 

 

 

                       

 

 

The following values are used for the Stochastic System.  The values shown are the default values.

 

 

%K Days

The number of days used to determine %K(Fast).

 

%D Days

The number of days used to determine %D, a moving average of %K.

 

%K Full MA Days

The number of days used to smooth %K(Full).

 

ATR Days

The number of days used to calculate average true range.

 

ATR Stop

A factor used to determine stops based on ATR.

 

Stochastic Swing Factor (Days)

The number of days high and low stochastics are considered in determining convergence.

 

Stochastic Swing Factor

The depth, in stochastic units, that highs and lows must be from each other.  If this is too high, only very large fluctuations will produce signals.  If this is too small, insignificant variations will generate signals.

 

Overbought Level

The range, in stochastic units, that is considered overbought.

 

Oversold Level

The range, in stochastic units, that is considered oversold.

 

Maximum Units

The maximum units that may be in the long position at any one time.

 

Crossover Lookback (Days)

The number of days that a crossover between %K(Slow) and %K(Full) is looked for.

 

Swing Exit Bars (Days)

Akin to Stochastic Swing Factor (Days), except only used to exit a long position.

 

 

 

Entry Script

' We are looking for a specific pattern here
' A convergence at a certain over-sold level, with a cross over
IF  stochasticHigh2 > overSoldLevel AND
   stochasticHigh1 > overSoldLevel AND
   stochasticLow1 < overSoldLevel AND
   stochasticLow2 < overSoldLevel AND
   stochasticKSlow > stochasticKFull AND
   stochasticKSlow[crossoverLookback] < stochasticKFull[crossoverLookback] AND
   stochasticLow1 > stochasticLow2 AND
   stochasticHigh1 < stochasticHigh2 AND
  instrument.bar - stochasticLow2Bar < swingEntryBars THEN
   
  IF instrument.totalUnits < maxUnits THEN
   
      IF useATRStops THEN
          broker.EnterLongOnOpen( instrument.close - averageTrueRange * atrStop )
      ELSE
          broker.EnterLongOnOpen
      ENDIF
   
  ENDIF
ENDIF

 

 

Exit Script

' We are looking for an exit point -- opposite logic to the entry point
IF  stochasticHigh2 > overBoughtLevel AND
   stochasticHigh1 > overBoughtLevel AND
   stochasticLow1 < overBoughtLevel AND
   stochasticLow2 < overBoughtLevel AND
   stochasticKSlow < stochasticKFull AND
   stochasticKSlow[crossoverLookback] > stochasticKFull[crossoverLookback] AND
   stochasticLow1 > stochasticLow2 AND
   stochasticHigh1 < stochasticHigh2 AND
  instrument.bar - stochasticLow2Bar < swingExitBars THEN
 
  broker.ExitAllUnitsOnOpen
ENDIF

 

 

Adjust Stops

' ---------------------------------------------
' Enter stop if "Use ATR Stops" is true
' ---------------------------------------------
 
IF useATRStops THEN
 
  FOR unitIndex = 1 to instrument.totalUnits
      broker.ExitUnitOnStop( unitIndex, instrument.unitExitStop[ unitIndex ] )
  NEXT
   
ENDIF

 

 

After Instrument Day Script

IF lookingForHigh = TRUE THEN
  IF stochasticKFull > stochasticHigh1 THEN
      'Finds new high
       
       stochasticHigh1 = stochasticKFull
       stochasticHigh1Bar = instrument.bar
  ENDIF
   
  IF stochasticHigh1 - stochasticKFull > swingFactor THEN
      'The high found is significant based on swingFactor
       
       lookingForLow = TRUE
       lookingforHigh = FALSE
       
       stochasticLow2 = stochasticLow1
       stochasticLow2Bar = stochasticLow1Bar
       
       stochasticLow1 = stochasticKFull
       stochasticLow1Bar = instrument.bar
  ENDIF
ENDIF
 
IF lookingForLow = TRUE THEN
 
  IF stochasticKFull < stochasticLow1 THEN
       stochasticLow1 = stochasticKFull
       stochasticLow1Bar = instrument.bar
  ENDIF
   
  IF stochasticKFull - stochasticLow1 > swingFactor THEN
       lookingForHigh = TRUE
       lookingForLow = FALSE
       
       stochasticHigh2 = stochasticHigh1
       stochasticHigh2Bar = stochasticHigh1Bar
       
       stochasticHigh1 = stochasticKFull
       stochasticHigh1Bar = instrument.bar
  ENDIF
ENDIF

 

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