stochastic technical indicator
Technical Indicators

Stochastic

Na tackle na natin ang RSI, ang Fibonacci at mga iilang indicators. I promised to educate you sa lahat ng available na indicators in a way na maiintindihan ninyo talaga.

I blog about things na nangyayare sa stock trading. Mga dirty tactics ng traders or ng brokers. I blog about things na makakaapekto sa psychology at emotion ng traders. I also blog about technical indicators. 

I plan to tackle LAHAT ng technical indicators na makikita ninyo sa chart ninyo at mga iba pa na hindi. I will explain it na sobrang simple para kahit hindi ka nagtapos ng high school ay maiintindihan mo. Halika himay himayin natin ang stochastic. Pag aaralan natin bawat sulok nito.

WHAT IS STOCHASTIC?

Stochastic refers to a randomly determined process. The term stochastic is used in many different fields, particularly where stochastic or random processes are used to represent systems or phenomena that seem to change in a random way. The word stochastic in English was originally used as an adjective with the definition “pertaining to conjecturing”, and stemming from a Greek word meaning “to aim at a mark, guess”, and the Oxford English Dictionary gives the year 1662 as its earliest occurrence.

WHAT IS STOCHASTIC IN STOCK TRADING?

The stochastic indicator is a momentum indicator developed by George C. Lane in the 1950s, which shows the position of the most recent closing price relative to the previous high-low range. The indicator measures momentum by comparing the closing price with the previous trading range over a specific period of time. 

The stochastic indicator does not follow the price or volume of the underlying currency pair, but the speed and momentum of the price. This means that the stochastic indicator changes direction before the price itself and can thus be considered a leading indicator. 

The most important signals that Lane identified are the bullish and bearish divergences that form on the stochastic indicator, which can anticipate upcoming price reversals. However, as the stochastic indicator oscillates within a range, it can also be used to identify overbought and oversold price levels.

ANO PO ANG STOCHASTIC? YUNG HINDI PO MAGULO NA EXPLANASYON.

Okay! Okay! Simulan natin sa formula. Ito ang formula:

stochastic formula in trading
stochastic formula

The stochastic indicator is calculated using the following formula:

     %K = (Most Recent Closing Price – Lowest     Low) / (Highest High – Lowest Low) × 100

     %D = 3-day SMA of %K

      Lowest Low = lowest low of the specified time period

     Highest High = highest high of the specified time period.

#YUNGHINDIPOMAGULONAEXPLANASYON

Simplehan natin. Kunin natin example si SM.

SMPH Price

Kuha tayo data sa past at present prices ni SM.

Dalawa yung formula. Bakit dalawa?Yung unang formula ay para sa unang linya. Yung pangalawa ay para sa ikalawang linya.

K% – Ang unang formula muna tutukan natin. Current Price minus lowest price of N. Ano yung N? Yan yung number of days na gusto ninyo. Mamaya papakita ko kung saan yan. Ang default niyan is 14 meaning 14 days so yan din gamitin natin. So yung formula is current price minus lowest price in 14 days divided by highest price in 14 days minus lowest price in 14 days.

Kuha tayo ng data mula March 6 up to April 20. (28 days lahat yun)

Para madali ilipat natin ang data sa Microsoft excel.

MAGULO BA? AKO BAHALA. HIHIMAYIN NATIN YAN.

ANG DATE:

Dito galing yan:

ANG HIGH:

DITO GALING YAN:

ANG LOW:

DITO GALING YAN:

ANG CURRENT PRICE:

DITO GALING YAN:

ANG HIGHEST HIGH:

SAN GALING YAN? DITO:

ANG LOWEST LOW:

SAAN GALING ANG LOWEST LOW?DITO.

ANO ITO?

YAN ANG RESULTA IF AAPPLY NATIN ANG FORMULA.

MALIWANAG NA?ANG SECOND FORMULA NAMAN.

ANO? CHECK NATIN SA CHART KUNG TAMA GAWA NATIN? TARA!

Ngayon alam na ninyo saan galing mga linya ni Stochastics.

ANO PURPOSE NI STOCHASTICS?

As a range-bound indicator, the stochastic oscillator can be used to identify overbought and oversold market conditions. A reading over 80 reflects overbought market conditions, and a reading below 20 reflects oversold market conditions.

The stochastic indicator itself can range only from 0 to 100, no matter how fast the price of the underlying currency pair changes.

In a standard 14-period setting, a reading above 80 indicates that the pair has been trading near the top of its trading range over the last 14 periods, while a reading below 20 indicates that the pair has been trading near the low of its trading range over the last 14 periods. It is important to note that oversold readings are not necessarily bullish, just like overbought readings are not necessarily bearish.

During a sustained uptrend or downtrend, the stochastic indicator can remain in the oversold or overbought area for a long period of time. Ang stochastics pwede mo rin gamitin as divergence. If di mo alam ang Divergence hanapin mo sa mga blogs ko at na discuss ko na yun.

OVERBOUGHT/OVERSOLD

DIVERGENCE

INFORMED VS UNINFORMED

I learned technical analysis mula sa formula at manual na pagplot sa graphing paper. You probably learned it sa chart na. Ano pinagkaiba noon? Ito yun. Look at the formula.

May napapansin ka ba? Meron o wala?

Ang sinusukat mo ay hindi talagang buying at selling strength. Ang sinusukat mo ay distance mula sa highest high at lowest low.

Let me explain. Sa loob ng 14 days ang highest is 10 at ang lowest kunyare is 2. Mula 2 to 10 ay ang sinusukat mo Kapag malapit ka sa 10 which is highest of the high sa loob ng 14 days ay overbought at kapag malapit ka naman sa 2 which is lowest of the low ay oversold.

YOU DON'T BELIEVE ME? I WILL SHOW YOU.

Kunin natin example ang April 20 price ni SM which is 845. Ang stochastic niya ay 70.68. Highest high is 884 at lowest low ay 751. Gawin natin parehas ang highest high at current price. Lets see what happens.

Naging 100 yung Stochastic. Kapag gawin natin same ang current price sa lowest price magiging zero naman ang stochastic.

Sinusukat niya kung gaano ba kalayo or saan na ba banda yung price compared sa highest high or lowest low. If nakita mo na nasa 82 ang stochastic matic na alam mo na malapit ito sa highest high niya sa loob ng given na period. Ang default period niya is 14 days.

Yan ha tip na yan. Pag nakita mo 82 alam mo na. “ahh meaning malapit ito sa highest high niya” Pag naman nakita mo stochastic na 20 “ah malapit ito sa lowest low niya”

Malapit sa high? Marami siguro bumibili. Malapit sa low? marami siguro nagbentahan.

Ngayon ito yung problema. Highest high at lowest low diba?

Paano ngayon kapag mahaba ang wick? Kunyare malaki ang spread. May ngbenta sa baba. or may nagbuy up lang. Sample nasa 5 pesos. Biglang may nagbenta sa 3 pesos na isang tao pero nagclose pa rin naman ang stock sa 5. Naglalaro lang ang price sa 4-5 but one day may isang tao nangailangan pera binenta niya sa 3. Bumalik naman ang price sa closing sa 5.

Will stochastic count for the 3 as lowest low?

YES!!!

Diyan lalabas ang understanding mo sa formula. Lowest low mo ngayon is 3.

Same din kapag may nagbuy up kahit wick lang ay makukuha ng stochastic yan sa formula. Yan ang flaw ni stochastic.

Naintindihan ba? Linawin ko. Price ni CEB nasa 50 to 65 sa loob ng 10 days. Naglalaro lang siya diyan. Isang araw may nagbenta sa 35 pesos. Flash crash. Seconds lang sabay baliknaman ang price sa 50. Dahil 35 ang magiging lowest low ni Ceb. Kahit pa sige benta hindi mag ooversold or mahihirapan mag ooversold ngayon si CEB kasi nga 35 ang lowest low niya.

Same scenario na nasa 50 to 60 ang price ni CEB. Ngayon biglang may nagkamali na broker nabuy up sa 80 si CEB pero seconds lang bigla din baba sa normal range niya. Dahil 80 ang highest high ni CEB mahihirapan magka overbought si CEB kahit pa umangat ito ng umangat lets say hanggang 67.

Dipping at Jabbing ang tawag sa paraan na yan noon but di na yan effective. Effective lang yan noon nung konti pa lang ang mga stocks. Hindi pa tayo pinapanganak ng mga time na yan hahaha. Yung nagturo sakin sa trading sabi niya ginagawa daw noon yan para makapagbenta na hindi ma ooversold or makabili ng hindi mao-overbought. Ngayon useles na sa tingin ko yan dahil sa dami ng stocks at sa dami ng indicators.

Marami pa akong ituturo sa inyo. Lahat ng akala ninyo mahihirap sa Trading e simplihan ko. Mula sa elliot wave hanggang sa harmonics. Daanan natin yan lahat. We are a family sa trader’s lounge. We will journey together.

I’m amused sa traders na whenever mag e-explain ng isang indicator ay yung gamit lang alam at hindi paano nabuo ang indicator. I’m more amused sa mga nagtutweak ng indicator na hindi naman alam paano naderive ang formula. Malaking error magagawa mo niyan.

Sample sa stochastics. Gawin mo siya kunyare 3 yung period para mabilis. If hindi mo gets ang formula ok lang yan. If naiintindihan mo alam mo na highest high at lowest low ay included sa formula meaning pabago bago ang stochastics mo at patalon talon kasi everyday pwede maging new ang highest or lowest.

I hope nakatulong ang blog na to sa ionyo mga kapamilya ko. Marami pa tayo e lelearn. We are approaching 30k members na now ang bilis. I’m happy.

Sana mapush natin free learnings. Sana marami pa tayo matulungan.

If you want to learn more about stock trading join our Facebook Group called Trader’s Lounge

Our advocacy is sharing ideas, experiences and knowledge to traders for FREE. We offer free Technical Analysis, Fundamental Analysis and Market Psychology learning materials for free. 

We also have weekly lessons over there. We created different trading strategies like MAMA which made a lot of traders profitable. Other trading strategies include FISHBALL, PAPA, CALMA and more. We want to offer OFW’s, Employees and all Filipino people a chance to learn without paying a cent. 

We also have a Youtube Channel wherein I myself discuss strategies and trading related topics. 

Come join us. Let us push free learning. 

20 Comments

  • Cha

    Bagay ka pong teacher! Yung time na iniintindi ko pa lang muna na overbought sya pag over 80 and oversold below 20 pero bakit nga ba siya umakyat ng 80 or bumaba ng 20? Yung sample talaga when you made an easy example –> closing price = highest of the specified period/lowest of the specified period ang nagpadali po ng lahat.. (Ay! yun lang pala yun??) Very nice yung hihimayin niyo po muna into finer details at bubuoin ng ganun-ganun kadali lamang. Everyone should teach/inform like you! Thank you po ulit! 😉

  • Irish Palahang

    New learnings,nahihilo at sumakit ulo ko pero babasahin ko ulit para mas magsink in sa brain cells ko hahaha.Notes is a key na din .Salamat sa panibagong kaalaman..Thanks for sharing your kaalaman to us..Big help talaga.

  • Ken Cauyan

    dumugo ilong ko gawa nung formulas. sumakit pati ulo ko. matutulog muna ako. pero bago matulog, bookmarked muna. basahin ko ulit mamaya.
    Mam GK maraming maraming salamat!

  • Rochelle Marcos

    I love the detailed explanation Ma’am G. You really knows talaga our “What Moment”. You jus get inside our brain cells. Overall, thanks for “bagong kaalaman” and for spoon feeding us this time. We will never go empty handed keeping us well equiped kpag sumabak na sa real trading in the future. God bless po.

  • Ramrodalbop

    Many thx Mam Gandakoh super galing & clear ng pag explain nyo khit sa Youtube wala p ko npanood ng ganito k detalye even from foreign gurus…. It only means….. Ur d best Mam Gandakoh. Or bka nman engot lng ako dahil dko gets english nla…. Keep it up Mam Gandakoh….GBU po…

  • JM

    Salamat ma’am, Bagong kaalaman na naman po.
    Gusto ko lang itanung maam kung anu relation ni Stochastic kay Stochastic RSI tsaka paano ito naderived.
    Salamat mam

  • Mario

    Sobrang detalyado, sobrang talino ni ms. Ganda. Grabe di ko na nabsorb sa daming information nakalimutan ko na lahat.. hahaha abangan ko na lang may video sigurong kasunod ito

  • Dee

    In-scan ko pa lang kasi walang pumapasok pa sa utak ko pero grabe yung paghihimay, ANG GALING kahit gradeschool matututo! Thanks for this.

  • Alfred

    Salamat po mam ganda .naririnig ko lng dati yan.o.b at o.s now i know saan ko makikita..may natutunan namn po ako

    • Kajo

      Ang galing! Ganun lang pala kasimple yun! Bilib talaga ako sayo Ms. Gandakoh. Idol ko ang paraan mo ng pagtuturo, the best, clear, direct, objective, sincere, honest, comprehensive, etc. Thank you very much!

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